Maxim 10-K 063012



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
T
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2012
OR
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-34192
MAXIM INTEGRATED PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
 
94-2896096
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
160 Rio Robles
San Jose, California 95134
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 601-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class 
Common stock, $0.001 par value
 
Name of each exchange on which registered 
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes T    No  £
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes £   No T
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes T    No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes T    No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. T
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated Filer T
 
Accelerated Filer  £
 
Non-accelerated Filer  £
(Do not check if a smaller reporting company)
 
Smaller Reporting Company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes £    No T
The aggregate market value of the voting stock held by non-affiliates of the Registrant based upon the closing price of the common stock on December 31, 2011 as reported by The NASDAQ Global Select Market was $4,181,299,802. Shares of voting stock held by executive officers, directors and holders of more than 5% of the outstanding voting stock have been excluded from this calculation because such persons may be deemed to be affiliates. Exclusion of such shares should not be construed to indicate that any of such persons possesses the power, direct or indirect, to control the Registrant, or that any such person is controlled by or under common control with the Registrant.
Number of shares outstanding of the Registrant's Common Stock, $.001 par value, as of August 7, 2012: 291,825,784.
Documents Incorporated By Reference:
(1)
Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the Proxy Statement for Maxim's 2012 Annual Meeting of Stockholders, to be filed subsequently.




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MAXIM INTEGRATED PRODUCTS

INDEX

 
Forward-Looking Statements
 
 
Part I
 
Business
 
Risk Factors
 
Unresolved Staff Comments
 
Properties
 
Legal Proceedings
 
Mine Safety Disclosures
 
 
Part II
 
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Selected Financial Data
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Quantitative and Qualitative Disclosures about Market Risk
 
Financial Statements and Supplementary Data
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
Controls and Procedures
 
Other Information
 
 
Part III
 
Directors, Executive Officers, and Corporate Governance
 
Executive Compensation
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Certain Relationships and Related Transactions, and Director Independence
 
Principal Accountant Fees and Services
 
 
Part IV
 
Exhibits and Financial Statement Schedules
 
 
 
 

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this "Annual Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in Part I, Item 1A - Risk Factors and in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. These statements relate to, among other things, sales, gross margins, operating expenses, capital expenditures and requirements, liquidity, asset dispositions, product development and R&D efforts, manufacturing plans, pending litigation, effective tax rates, and tax reserves for uncertain tax positions, and are indicated by words or phrases such as "anticipate," "expect," "outlook," "foresee," "forecast," "believe," "should," "could," "intend," "will," "plan," "seek," "project," and variations of such words and similar words or expressions. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. For a discussion of some of the factors that could cause actual results to differ materially from our forward-looking statements, see the discussion on "Risk Factors" that appears in Part I, Item 1A of this Annual Report and other risks and uncertainties detailed in this and our other reports and filings with the Securities and Exchange Commission ("SEC"). We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so except as required by applicable laws.


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PART I

ITEM 1. BUSINESS

Overview

Maxim Integrated Products, Inc. ("Maxim" or the "Company" and also referred to as "we," "our" or "us") designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits, for a large number of customers in diverse geographical locations. The analog market is fragmented and characterized by diverse applications, numerous product variations and, with respect to many circuit types, relatively long product life cycles. Our objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality and performance standards demanded by customers.

We are a Delaware corporation originally incorporated in California in 1983. We are headquartered in San Jose, California. The mailing address for our headquarters is 160 Rio Robles, California 95134, and our telephone number is (408) 601-1000. Additional information about us is available on our website at www.maximintegrated.com.

The Company has a 52-to-53-week fiscal year that ends on the last Saturday of June. Accordingly, every fifth or sixth year will be a 53-week fiscal year. Fiscal year 2012 was a 53-week fiscal year. Fiscal years 2011 and 2010 were 52-week fiscal years.

We make available through our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. We assume no obligation to update or revise any forward-looking statements in this Annual Report, whether as a result of new information, future events or otherwise, unless we are required to do so by applicable laws. A copy of this Annual Report is available without charge upon written request to: Investor Relations, Maxim Integrated Products, Inc., 160 Rio Robles, San Jose, California 95134.

The Mixed Signal Analog Integrated Circuit Market

All electronic signals generally fall into one of two categories, linear or digital. Linear (or analog) signals represent real world phenomena, such as temperature, pressure, sound, or speed, and are continuously variable over a wide range of values. Digital signals represent the "ones" and "zeros" of binary arithmetic and are either on or off.

Three general classes of semiconductor products arise from this distinction between linear and digital signals:

digital devices, such as memories and microprocessors that operate primarily in the digital domain;
linear devices, such as amplifiers, references, analog multiplexers and switches that operate primarily in the analog domain; and
mixed-signal devices such as data converter devices that combine linear and digital functions on the same integrated circuit and interface between the analog and digital domains.

Our strategy has been to target both the linear and mixed-signal markets, often collectively referred to as the analog market. However, some of our products are exclusively or principally digital. While our focus continues to be on the linear and mixed signal market, our capabilities in the digital domain enable development of new mixed signal and other products with highly sophisticated digital characteristics.

We operate in one reportable segment - the design, development, marketing and manufacturing of a broad range of linear and mixed signal integrated circuits.

Our linear and mixed signal products serve four major end-markets. These major end-markets and their corresponding market segments are noted in the table below:


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MAJOR END-MARKET
MARKET SEGMENT
 
 
INDUSTRIAL
Automatic Test Equipment
 
Automotive
 
Control & Automation
 
Electronic Instrumentation
 
Medical
 
Military & Aerospace
 
Security
 
Utility & Other Meters
 
Other Industrial
 
 
COMMUNICATIONS
Basestations
 
Network & Datacom
 
Telecom
 
Other Communications
 
 
CONSUMER
Cell Phones
 
Digital Cameras
 
Handheld Computers
 
Home Entertainment & Appliances
 
Other Consumer
 
 
COMPUTING
Data Storage
 
Financial Terminals
 
Notebook Computers
 
Server & Desktop Computers
 
Peripherals & Other Computer

Product Quality

We employ a system addressing quality and reliability of our products from initial design through wafer fabrication, assembly, testing and final shipment. We have received ISO 9001/2, TS 16949 and ISO 14001 certifications for all wafer fabrication, assembly, final test and shipping facilities. Based on industry standard requirements, we conduct reliability stress testing on the products we manufacture and sell. Through this testing, we seek to detect and accelerate the presence of defects that may arise over the life of a product in order to ensure its reliability.

Manufacturing

We manufacture wafers in our own facilities and use third-party silicon foundries. The majority of processed wafers are subjected to parametric and functional testing at our facilities. The broad range of products demanded by the analog integrated circuit market requires multiple manufacturing process technologies. As a result, many different process technologies are currently used for wafer fabrication of our products. Historically, wafer fabrication of analog integrated circuits has not required state-of-the-art processing equipment, although newer processes do utilize and require such state-of-the-art facilities and equipment. In addition, hybrid and module products are manufactured using a complex multi-chip technology featuring thin-film, laser-trimmed resistors and other active or passive components. We rely on our own fabrication technologies and facilities to implement such manufacturing requirements. We also utilize unaffiliated manufacturing subcontractors. We are expanding our internal and external manufacturing and test capacity to meet future growth.

During fiscal years 2012, 2011 and 2010, a large portion of our own wafer production occurred at one of our three owned wafer fabrication facilities at the following locations:

Facility Location
Fiscal Year Acquired
Beaverton, Oregon
1994
San Jose, California
1998
San Antonio, Texas
2004


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In fiscal year 2007, we entered into a supply agreement with Seiko Epson Corporation ("Epson"). In fiscal year 2010, we entered into a supply agreement with Powerchip Technology Corporation ("Powerchip") and Maxchip Electronics Corp. ("Maxchip") to provide 300mm and 200mm wafer capacity. Under these agreements, partner foundries (Epson, Powerchip and Maxchip) have manufactured some of our mixed-signal semiconductor products. These products are manufactured under rights and licenses using our proprietary technology at Epson's fabrication facility located in Sakata, Japan and at Powerchip and Maxchip's fabrication facilities in Hsinchu, Taiwan. In fiscal years 2012, 2011 and 2010, the products manufactured by our partner foundries represented 42%, 32% and 19%, respectively, of our total wafer production.

At the end of fiscal year 2009, we ceased wafer fabrication in our Dallas, Texas facility and converted it into a wafer bump manufacturing facility. Our wafer bump manufacturing facility located in Dallas, Texas is used to manufacture products that utilize chip scale packaging ("CSP") or wafer level packaging ("WLP"). CSP or WLP enables integrated circuits to be attached directly to a printed circuit board without the use of a traditional plastic package. In addition, we utilize independent subcontractors to perform wafer bump manufacturing to the extent we do not have the internal capacity or capabilities to perform such services.

Once wafer manufacturing has been completed, wafers are generally sorted in order to determine which integrated circuits on each wafer are functional and which are defective. We currently perform the majority of wafer sort, final test and shipping activities at two facilities located in Cavite, the Philippines and Chonburi Province, Thailand, although we also utilize independent subcontractors for some wafer sorting. Our finished products ship directly from either Cavite, the Philippines or Chonburi Province, Thailand to customers worldwide or to other Company locations for sale to end-customers or distributors. 

Integrated circuit assembly is performed by foreign assembly subcontractors, located in China, Japan, Malaysia, the Philippines, Taiwan, Thailand, Singapore and South Korea, where wafers are separated into individual integrated circuits and assembled into a variety of packages.

After assembly has been completed, the majority of the assembled product is shipped back to our facilities located in Cavite, the Philippines or Chonburi Province, Thailand where the packaged integrated circuits undergo final testing and preparation for customer shipment. In addition, we utilize independent subcontractors to perform final testing.

With the introduction of 300mm wafers into our manufacturing network, we have enabled subcontractors located in Taiwan to perform wafer bumping and testing of these wafers.

We currently perform substantially all of our module assembly operations in our facility in Batangas, the Philippines. Our Philippines facility also performs wafer singulation and tape-and-reel of bumped (CSP or WLP) wafers.

Customers, Sales and Marketing

We market our products worldwide through a direct-sales and applications organization and through our own and other unaffiliated distribution channels to a broad range of customers in diverse industries. Our products typically require a sophisticated technical sales and marketing effort. Our sales organization is divided into domestic and international regions. Distributors and direct customers generally buy on an individual purchase order basis, rather than pursuant to long-term agreements.

Certain distributors have agreements with us which allow for price protection on certain inventory if we lower the price of our products. Certain distributor agreements also generally permit distributors to exchange a portion of certain purchases on a periodic basis. As is customary in the semiconductor industry, our distributors may also market other products that compete with our products.

Sales to certain international distributors are made under agreements which permit limited stock return privileges but not sales price rebates.  The agreements generally permit distributors to exchange a portion of their purchases on a periodic basis. See "Critical Accounting Policies" in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to the Consolidated Financial Statements included in this Annual Report, which contains information regarding our revenue recognition policy.

We derived approximately 29% of our fiscal year 2012 revenue from sales made through distributors. Our primary distributor is Avnet Electronics which accounted for 13%, 14% and 12% of our revenues in fiscal years 2012, 2011 and 2010, respectively. Avnet, like our other distributors, is not an end customer, but rather serves as a channel of sale to many end users of the Company's products. Samsung, our largest single customer, accounted for approximately 20%, 12% and 12% of net revenues in fiscal years 2012, 2011 and 2010, respectively. No single product accounted for more than 10% of net revenues in fiscal years 2012, 2011 and 2010. Based on customers' ship-to locations, international sales accounted for approximately 88%, 85% and 85% of net revenues in fiscal years 2012, 2011 and 2010, respectively. See Note 12, "Segment Information" in the Notes to Consolidated

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Financial Statements in Item 15.

Seasonality
 

Our revenue is generally influenced on a quarter to quarter basis by customer demand patterns and new product introductions. However, an increasing number of our products are being incorporated into consumer electronic products, which are subject to significant seasonality and fluctuations in demand, and tend to have stronger sales in the middle of the calendar year as manufacturers prepare for the major holiday selling seasons. 

Foreign Operations
 

We conduct business in numerous countries outside of the United States. Our international business is subject to numerous risks, including fluctuations in foreign currency exchange rates and controls, import and export controls, and other laws, policies and regulations of foreign governments.
 
Backlog

At June 30, 2012 and June 25, 2011, our current quarter backlog was approximately $393 million and $460 million, respectively. We include in backlog orders with customer request dates within the next three months. As is customary in the semiconductor industry, these orders may be canceled in most cases without penalty to customers. In addition, backlog includes orders from domestic distributors for which revenues are not recognized until the products are sold by the distributors. Accordingly, we believe that our backlog is not a reliable measure of future revenues. All backlog numbers have been adjusted for estimated future U.S. distribution ship and debit pricing adjustments.

Research and Development

We believe that research and development is critical to our future success. Objectives for the research and development function include:

new product definition and development of proprietary products;
design of parts for performance differentiation and the ability to achieve manufacturing high yield and reliability;
development of, and access to, manufacturing processes and advanced packaging;
development of hardware and software to support the acceptance and design-in of our products in the end customer's system; and
development and design wins of high-integration products across multiple end markets.

Our research and development plans require engineering talent and tools for process technologies, test development, packaging development, product definition, electronic design automation ("EDA"), circuit design, software development and applications support. Research and development expenses were $552.4 million, $525.3 million and $474.7 million in fiscal years 2012, 2011 and 2010, respectively. See "Research and Development" under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for more information.

Competition

The mixed signal analog integrated circuit industry is intensely competitive, and virtually all major semiconductor companies presently compete with, or conceivably could compete with, some portion of our business.

We believe the principal elements of competition include:

technical innovation, service and support;
time to market;
differentiated product performance and features;
quality and reliability;
product pricing and delivery capabilities;
customized design and applications;
business relationship with customers;
experience, skill and productivity of employees and management; and
manufacturing competence and inventory management.

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Our principal competitors include, but are not limited to, Analog Devices, Inc., Intersil Corporation, Linear Technology Corporation, NXP Semiconductors NV and Texas Instruments Inc. In addition, we compete with digital chipset providers, including Broadcom Corporation and Qualcomm Inc. We expect increased competition in the future from other emerging and established companies.

Patents, Licenses, and Other Intellectual Property Rights

We rely upon both know-how and patents to develop and maintain our competitive position.

It is our policy to seek patent protection for significant inventions that may be patented, though we may elect, in certain cases, not to seek patent protection even for significant inventions if other protection, such as maintaining the invention as a trade secret, is considered more advantageous. In addition, we have registered certain of our mask sets under the Semiconductor Chip Protection Act of 1984, as amended. We hold a number of patents worldwide with expiration dates ranging from 2012 to 2032. We have also registered several of our trademarks and copyrights with the U.S. Patent and Trademark Office and in foreign jurisdictions.

Employees

As of June 30, 2012, we employed 9,065 people of whom 4,214 were employed in the United States.

Environmental Regulations

Our compliance with foreign, federal, state and local laws and regulations that have been enacted to regulate the environment has not had a material adverse effect on our capital expenditures, earnings, or competitive or financial position.

Executive Officers

For information regarding our current executive officers, please see Part III, Item 10 of this Annual Report.


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ITEM 1A. RISK FACTORS

The following risk factors and other information included in this Annual Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.

Cyclicality in the semiconductor industry may adversely affect our results of operations

Historically, the semiconductor industry has been cyclical and subject to significant and often rapid increases and decreases in demand for products and services. These changes could have adverse effects on our results of operations and on the market price of our common stock. The results of our operations may be adversely affected if demand for our products and services decreases or if we are unable to meet an increase in demand without significantly increasing the lead-time for the delivery of our products and services.

Incorrect forecasts, reductions, cancellations or delays in orders for our products could adversely affect our results of operations

As is customary in the semiconductor industry, customer orders may be canceled in most cases without penalty to the customers. Some customers place orders that require us to manufacture products and have them available for shipment, even though the customer may be unwilling to make a binding commitment to purchase all, or even any, of the products. In other cases, we manufacture products based on forecasts of customer demands. As a result, we may incur inventory and manufacturing costs in advance of anticipated sales and are subject to the risk of cancellations of orders, potentially leading to an initial inflation of backlog followed by a sharp reduction. In addition, backlog includes orders from domestic distributors for which revenues are not recognized until the ordered products are sold by the distributors. Because of the possibility of order cancellation, backlog should not be used as a measure of future revenues. Furthermore, orders or forecasts may be for products meeting the customer's unique requirements such that those canceled or unrealized orders may also result in an inventory of unsaleable products, causing potential inventory write-offs. As a result of lengthy manufacturing cycles for certain of the products, the amount of unsaleable products could be substantial. As a result, incorrect forecasts, reductions, cancellations or delays in orders for our products could adversely affect our operating results.

Our operating results may be adversely affected by unfavorable economic and market conditions

The economic environment could subject us to increased credit risk should customers be unable to pay us, or delay paying us, for previously purchased products. Accordingly, reserves for doubtful accounts and write-offs of accounts receivable may increase. In addition, weakness in the market for end users of our products could harm the cash flow of our distributors and resellers who could then delay paying their obligations to us or experience other financial difficulties. This would further increase our credit risk exposure and, potentially, cause delays in our recognition of revenue on sales to these customers.
 
If economic or market conditions deteriorate globally, in the United States or in other key markets, our business, operating results, and financial condition may be materially and adversely affected.

Political conditions could materially affect our revenues and results of operations

We are subject to the political and legal risks inherent in international operations. Exposure to political instabilities, different business policies and varying legal standards could impact economic activity, which in turn could lead to a contraction of customer demand or a disruption in our operations. We have been impacted by these problems in the past, but none have materially affected our results of operations. Problems in the future or not-yet-materialized consequences of past problems could affect deliveries of our products to our customers, possibly resulting in substantially delayed or lost sales and/or increased expenses that cannot be passed on to customers.

Our quarterly operating results may fluctuate, which could adversely impact our common stock price

We believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance. Our operating results have in the past been, and will continue to be, subject to quarterly fluctuations as a result of numerous factors, some of which may contribute to more pronounced fluctuations in an uncertain global economic environment. These factors include, but are not limited to, the following:

Fluctuations in demand for our products and services;
Loss of a significant customer or significant customers electing to purchase from another supplier;

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Reduced visibility into our customers' spending plans and associated revenue;
The level of price and competition in our product markets;
Our pricing practices, including our use of available information to maximize pricing potential;
The impact of the uncertain economic and credit environment on our customers, channel partners, and suppliers, including their ability to obtain financing or to fund capital expenditures;
The overall movement toward industry consolidations among our customers and competitors;
Below industry-average growth of the non-consumer segments of our business;
Announcements and introductions of new products by us or our competitors;
Deferrals of customer orders in anticipation of new products or product enhancements (introduced by us or our competitors);
Our ability to meet increases in customer orders in a timely manner;
Striking an appropriate balance between short-term execution and long-term innovation;
Our ability to develop, introduce, and market new products and enhancements and market acceptance of such new products and enhancements; and
Our levels of operating expenses.

Our products may fail to meet new industry standards or requirements and the efforts to meet such industry standards or requirements could be costly

Many of our products are based on industry standards that are continually evolving. Our ability to compete in the future will depend on our ability to identify and ensure compliance with these evolving industry standards. The emergence of new industry standards could render our products incompatible with products developed by major systems manufacturers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards or requirements, we could miss opportunities to achieve crucial design wins which in turn could have a material adverse effect on our business, operations and financial results.

Our critical information systems, necessary for the operation of our business, are subject to interruptions and failures
We maintain and rely upon certain critical information systems for the effective operation of our business. These information systems include telecommunications, the internet, our corporate intranet, various computer hardware and software applications, network communications and e-mail. These information systems may be owned by us or by our outsource providers or even third parties such as vendors and contractors and may be maintained by us or by such providers or third parties. These information systems are subject to attacks, including attacks that may result in theft of our intellectual property, failures and access denials from a number of potential sources including viruses, destructive or inadequate code, power failures and physical damage to computers, hard drives, communication lines and networking equipment. To the extent that these information systems are under our control, we have implemented security procedures, such as virus protection software and emergency recovery processes, to address the outlined risks; however, security procedures for information systems cannot be guaranteed to be failsafe and our inability to use or access these information systems at critical points in time could unfavorably impact the timely and efficient operation of our business.
 
We may encounter difficulties in the implementation of a new manufacturing execution system, which may adversely affect our operations and financial reporting
 
We are in the process of implementing a new manufacturing execution system (“MES”) in our testing facilities that is scheduled to be completed by the end of fiscal year 2013 as part of our ongoing efforts to improve the quality and productivity of  our operations. In addition, we are in process of implementing a global execution system (“GES”) that is scheduled to begin implementation in fiscal year 2013 as part of our efforts to integrate inventory movement with our financial reporting system. Any difficulties in the implementation or operation of the MES could increase the cost to test our products or disrupt the testing of our products. Such developments could materially adversely affect our results of operation and financial reporting.

Our manufacturing operations may be interrupted or suffer yield problems

Given the nature of our products, it would be time consuming, difficult, and costly to arrange for new manufacturing facilities to supply such products. Any prolonged inability to utilize one of our manufacturing facilities or a third party foundry, due to damages resulting from fire, natural disaster, unavailability of electric power, labor unrest or other causes, would have a material adverse effect on our results of operations and financial condition.


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The manufacture and design of integrated circuits is highly complex. We may experience manufacturing problems in achieving acceptable yields or experience product delivery delays in the future as a result of, among other things, capacity constraints, equipment malfunctioning, construction delays, upgrading or expanding existing facilities, changing our process technologies, or new technology qualification delays, particularly in our internal fabrication facilities, any of which could result in a loss of future revenues or increases in fixed costs. To the extent we do not achieve acceptable manufacturing yields or we experience delays in wafer fabrication, our results of operations could be adversely affected.  In addition, operating expenses related to increases in production capacity may adversely affect our operating results if revenues do not increase proportionately.

Our independent distributors and sales representatives may terminate their relationship with us or fail to make payments on outstanding accounts receivable to us, which would adversely affect our financial results

A portion of our sales is realized through independent electronics distributors that are not under our direct control. These independent sales organizations generally represent product lines offered by several companies and thus could reduce their sales efforts applied to our products or terminate their representation of us. We require certain foreign distributors to provide a letter of credit to us in an amount up to the credit limit set for accounts receivable from such foreign distributors. The letter of credit provides for collection on accounts receivable from the foreign distributor should the foreign distributor default on their accounts receivable to us. Where credit limits have been established above the amount of the letter of credit, we are exposed for the difference. We do not require letters of credit from any of our domestic distributors and are not contractually protected against accounts receivable default or bankruptcy by these distributors. The inability to collect open accounts receivable could adversely affect our results of operations and financial condition. Termination of a significant distributor, whether at our or the distributor's initiative, could be disruptive to our current business.

Our operating results may be adversely affected by increased competition

We experience intense competition from a number of companies, some of which have significantly greater financial, manufacturing, and marketing resources than us, as well as greater technical resources and proprietary intellectual property rights than us. The principal elements of competition include product performance, functional value, quality and reliability, technical service and support, price, diversity of product line, sale of multiple chips for a price as part of a complete system solution and delivery capabilities. We believe we compete favorably with respect to these factors, although we may be at a disadvantage in comparison to larger companies with broader product lines and greater technical service and support capabilities. We may be unable to compete successfully in the future against existing or new competitors and our operating results may be adversely affected by increased competition.

We are dependent on a few large customers and market segments for a substantial portion of our revenues, the loss of which could materially affect our revenues and results of operations
We depend on a few large customers and market segments for a substantial portion of our net revenues. Samsung, our largest single customer, accounted for approximately 20%, 12% and 12% of net revenues in fiscal years 2012, 2011 and 2010, respectively. The loss of all or a substantial portion of our sales to any of these large customers or market segments could have a material adverse effect on our financial condition and results of operations.

Our dependence on subcontractors for assembly, test, freight, and logistic services and certain manufacturing services may cause delays beyond our control in delivering products to our customers

We rely on subcontractors located in various parts of the world for assembly and CSP packaging services, freight and logistic services, wafer fabrication and sorting and testing services. None of the subcontractors we currently use are affiliated with us. Reliability problems experienced by our subcontractors or the inability to promptly replace any subcontractor could cause serious problems in delivery and quality resulting in potential product liability to us. Such problems could impair our ability to meet our revenue plan in the fiscal year period impacted by the disruption. Failure to meet the revenue plan may materially adversely impact our results of operations.

Any disruptions in our sort, assembly, test, freight and logistic operations or in the operations of our subcontractors, including, but not limited to, the inability or unwillingness of any of our subcontractors to produce or timely deliver adequate supplies of processed wafers, integrated circuit packages or tested products conforming to our quality standards, or other required products or services could damage our reputation, relationships and goodwill with customers. Furthermore, finding alternate sources of supply or initiating internal wafer processing for these products may not be economically feasible.


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Shortage of raw materials or supply disruption of such raw materials could harm our business

The semiconductor industry has experienced a large expansion of fabrication capacity and production worldwide over time. As a result of increasing demand from semiconductor, solar and other manufacturers, availability of certain basic materials and supplies, such as raw wafers and silicon on insulator wafers, chemicals, gases, polysilicon, silicon wafers, ultra-pure metals, lead frames and molding compounds, and of subcontract services, like epitaxial growth, ion implantation and assembly of integrated circuits into packages, has been limited from time to time over the past several years, and could come into short supply again if overall industry demand exceeds the supply of these materials and services in the future.

We purchase materials and supplies from many suppliers, some of which are sole-sourced. If the availability of these materials and supplies is interrupted, we may not be able to find suitable replacements. In addition, from time to time natural disasters can lead to a shortage of some of the above materials due to disruption of the manufacturer's production. We continually strive to maintain availability of all required materials, supplies and subcontract services. However, we do not have long-term agreements providing for all of these materials, supplies and services, and shortages could occur as a result of capacity limitations or production constraints on suppliers that could have a material adverse effect on our ability to achieve our production requirements.

Environmental liabilities could force us to expend significant capital and incur substantial costs

Various foreign and domestic federal, state, and local government agencies impose a variety of environmental regulations on the storage, handling, use, discharge and disposal of certain chemicals, gases and other substances used or produced in the semiconductor manufacturing process. Historically, compliance with these regulations has not had a material adverse effect on our capital expenditures, earnings, or competitive or financial position. There can be no assurance, however, that interpretation and enforcement of current or future environmental regulations will not impose costly requirements upon us. Any failure by us to adequately control the storage, handling, use, discharge or disposal of regulated substances could result in fines, suspension of production, alteration of wafer fabrication processes and legal liability, which may materially adversely impact our financial condition, results of operations or liquidity.

We may be unable to adequately protect our proprietary rights, which may impact our ability to compete effectively

We rely upon know-how, trade secrets, and patents to develop and maintain our competitive position. There can be no assurance that others will not develop or patent similar technology or reverse engineer our products or that the confidentiality agreements upon which we rely will be adequate to protect our interests. Moreover, the laws of some foreign countries generally do not protect proprietary rights to the same extent as the United States, and we may encounter problems in protecting our proprietary rights in those foreign countries. Other companies have obtained patents covering a variety of semiconductor designs and processes, and we could be required to obtain licenses under some of these patents or be precluded from making and selling the infringing products, if such patents are valid and other design and manufacturing solutions are not available. There can be no assurance that we would be able to obtain licenses, if required, upon commercially reasonable terms or at all.

We may suffer losses and business interruption if our products infringe the intellectual property rights of others
 
In the past, it has been common in the semiconductor industry for patent holders to offer licenses on reasonable terms and rates. Although the practice of offering licenses appears to be generally continuing, in some situations, typically where the patent directly relates to a specific product or family of products, patent holders have refused to grant licenses. In any of those cases, there can be no assurance that we would be able to obtain any necessary license on terms acceptable to us, if at all, or that we would be able to re-engineer our products or processes in a cost effective manner to avoid infringement. Any litigation in such a situation could involve an injunction to prevent the sales of a material portion of our products, the reduction or elimination of the value of related inventories and the assessment of a substantial monetary award for damages related to past sales, all of which could have a material adverse effect on our results of operations and financial condition.

We may experience losses related to intellectual property indemnity claims
 
We provide intellectual property indemnification for certain customers, distributors, suppliers and subcontractors for attorney fees and damages and costs awarded against these parties in certain circumstances in which our products are alleged to infringe third party intellectual property rights, including patents, registered trademarks and copyrights. In certain cases, there are limits on and exceptions to our potential liability for indemnification relating to intellectual property infringement claims. We cannot estimate the amount of potential future payments, if any, that we might be required to make as a result of these agreements. To date, we have not been required to pay significant amounts for intellectual property indemnification claims. However, there can be no assurance that we will not have significant financial exposure under those intellectual property indemnification obligations in the

12



future.

Business interruptions from natural disasters could harm our business

We operate our business in worldwide locations. Some of our facilities and those of our subcontractors are located in geologically unstable areas of the world and are susceptible to damage from natural disasters. In the event of a natural disaster, we may suffer a disruption in our operations that could adversely affect our results of operations.

Our financial condition, operations and liquidity may be materially adversely affected in the event of a catastrophic loss for which we are self-insured

We are primarily self-insured with respect to many of our commercial risks and exposures. Based on management's assessment and judgment, we have determined that it is generally more cost effective to self-insure these risks. The risks and exposures we self-insure include, but are not limited to, fire, property and casualty, natural disasters, product defects, political risk, general liability, theft, counterfeits, patent infringement, certain employment practice matters and medical benefits for many of our domestic (United States) employees. We also maintain insurance contracts with independent insurance companies that provide certain of our employees with health (medical and dental) benefits, worker's compensation coverage, long-term disability income coverage, life insurance coverage and fiduciary insurance coverage for employee and Company funds invested under the Employee Retirement Income and Security Act. In addition, we maintain officer and director liability coverage and certain property insurance contracts with independent insurance companies. Should there be catastrophic loss from events such as fires, explosions or earthquakes or other natural disasters, among many other risks, or adverse court or similar decisions in any area in which we are self-insured, our financial condition, results of operations and liquidity may be materially adversely affected.

Limitations in manufacturing capacity or delays in lead-time for delivery of products could adversely affect our future growth opportunities and results of operations

Limitations in manufacturing capacity and other supply constraints could impede our ability to grow revenues and meet increased customer demands for our products. Our results of operations may be adversely affected if we fail to meet such increase in demand for our products without significantly increasing the lead-time required for our delivery of such products. Any significant increase in the lead-time for delivery of products may negatively affect our customer relationships, reputation as a dependable supplier of products and ability to obtain future design wins, while potentially increasing order cancellations, aged, unsaleable or otherwise unrealized backlog, and the likelihood of our breach of supply agreement terms. Any of the foregoing factors could negatively affect our future revenue growth and results of operations.

We are subject to warranty claims and product liability

We face an inherent risk of exposure to product liability suits in connection with reliability problems or other product defects that may affect our customers. Our products are used by a variety of industries, including the transportation and medical industries. Failure of our products to perform to specifications, or other product defects, could lead to substantial damage to both the end product in which our device has been placed and to the user of such end product. Although we take measures to protect against product defects, if a product liability claim is brought against us, the cost of defending the claim could be significant and any adverse determination could have a material adverse effect on our results of operations.

We manufacture and sell products into many global jurisdictions where our efforts to contractually limit liability for certain damages, including consequential, indirect and non-proximately caused damages, may not be enforceable or may be found by a court to not apply in a particular situation. Likewise, as we continue to partner with certain customers we may be required to accept increasing exposure for liability, including product liability. We believe these relationships with key customers will continue to increase. While we attempt to structure our customer relationships to reduce such exposures, it is not always possible to limit or eliminate such liability. Should we choose to not enter into such relationships or limit the number of such relationships due to our inability to negotiate acceptable limits on liability, our revenues and financial operations could be materially adversely affected.

We may be liable for additional production costs and lost revenues to certain customers with whom we have entered into customer supply agreements if we are unable to meet certain product quantity and quality requirements

We enter into contracts with certain customers whereby we commit to supply quantities of specified parts at a predetermined scheduled delivery date. The number of such arrangements continues to increase as this practice becomes more commonplace. Should we be unable to supply the customer with the specific part at the quantity and product quality desired and on the scheduled delivery date, the customer may incur additional production costs. In addition, the customer may lose revenues due to a delay in

13



receiving the parts necessary to have the end-product ready for sale to its customers or due to product quality issues. Under certain customer supply agreements, we may be liable for direct additional production costs or lost revenues. If products are not shipped on time or are quality deficient, we may be liable for penalties and resulting damages. Such liability, should it arise, and/or our inability to meet these commitments to our customers may have a material adverse impact on our results of operations and financial condition and could damage our relationships, reputation and goodwill with the affected customers.

We may pursue acquisitions and investments that could harm our operating results and may disrupt our business

Impairment of goodwill poses a financial risk for failed acquisitions. We have made and will continue to consider making strategic business investments, alliances and acquisitions we consider necessary or desirable to gain access to key technologies that we believe will augment our existing technical capability and support our business model objectives. Acquisitions, alliances and investments involve risks and uncertainties that may negatively impact our future financial performance. If integration of our acquired businesses is not successful, we may not realize the potential benefits of an acquisition or suffer other adverse effects that we currently do not foresee. We may also need to enter new markets in which we have no or limited experience and where competitors in such markets have stronger market positions.

Any of the foregoing, and other, factors could harm our ability to achieve anticipated levels of profitability from acquired businesses or to realize other anticipated benefits of acquisitions. In addition, because acquisitions of high technology companies are inherently risky, no assurance can be given that our previous or future acquisitions will be successful and will not adversely affect our business, operating results, or financial condition.

If we fail to enter into future vendor managed inventory arrangements or fail to supply the specific product or quantity under such arrangements, the results of our operations and financial condition may be materially adversely impacted

We enter into arrangements with certain original equipment manufacturers ("OEMs") and Electronic Manufacturing Services ("EMS") partners to consign quantities of certain products within close proximity of the OEMs and EMS partners' manufacturing location. The inventory is physically segregated at these locations and we retain title and risk of loss related to this inventory until such time as the OEM or EMS partner pulls the inventory for use in its manufacturing process. Once the inventory is pulled by the OEM or EMS partner, title and risk of loss pass to the customer, at which point we relieve inventory and recognize revenue and the related cost of goods sold. The specific quantities to be consigned are based on a forecast provided by the OEM or EMS partner. Generally, the arrangements with the OEMs and EMS partners provide for transfer of title and risk of loss once product has been consigned for a certain length of time.

We believe these arrangements will continue to grow in terms of number of customers and products and will increase in proportion to consolidated net revenues. Should we be unable or unwilling to enter into such agreements as requested by OEMs or EMS partners, our results of operations may be materially adversely impacted. In addition, should we be unable to supply the specific product in the quantity needed by the OEM or EMS partner as reflected in their forecast, we may be liable for damages, including, but not limited to, lost revenues and increased production costs which could have a material adverse impact on our results of operations and financial condition. Should we supply product in excess of the OEM or EMS partners actual usage, any inventory not consumed may become excess or obsolete, which would result in an inventory write off that could materially adversely affect our results of operations.

Our stock price may be volatile

The market price of our common stock has fluctuated significantly. In the future, the market price of our common stock could be subject to significant fluctuations due to general economic and market conditions and in response to quarter-to-quarter variations including, but not limited to, the following:

our anticipated or actual results of operations;
announcements or introductions of new products by us or our competitors;
anticipated or actual operating results of our customers, peers or competitors;
technological innovations or setbacks by us or our competitors;
conditions in our four major markets;
the commencement or outcome of litigation or governmental investigations;
change in ratings and estimates of our performance by securities analysts;
announcements of merger, acquisition or divestiture transactions;
dividend changes;
changes in our capital structure, including any decision we make in regard to the repurchase of our common stock;

14



management changes;
supply constraints;
semiconductor industry cyclicality;
our inclusion in certain stock indices;
our ability to maintain compliance with the SEC reporting requirements; and
other events or factors beyond our control.

The market prices and trading volumes of many high technology companies, including semiconductor companies, are subject to volatility due to a variety of microeconomic, macroeconomic, and other factors. In some instances, these fluctuations can be unrelated or disproportionate to the operating performance of the affected companies. Any such fluctuation could harm the market price of our common stock.

Our ability to service our debt obligations, including $300 million of senior unsecured notes, requires sufficient cash flow from our future operations
In June 2010, the Company issued $300 million in senior, unsecured debt due in 2013 with an effective interest rate of 3.49%. Interest is payable semi-annually on December 14 and June 14. The debt indenture includes covenants that limit the Company's ability to grant liens on its facilities and to enter into sale and leaseback transactions, which could limit the Company's ability to secure debt funding in the future.  In circumstances involving a change of control of the Company followed by a downgrade of the rating of the Company's notes, the Company would be required to make an offer to repurchase these notes at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest. The Company's ability to repurchase the notes in such events may be limited by the Company's then-available financial resources or by the terms of other agreements to which the Company is a party. Although the Company currently has the funds necessary to retire this debt, funds might not be available to repay the notes when they become due in the future. 

If the Company fails to pay interest when due, fails to repay the notes when due or materially breaches other loan covenants, it would constitute an event of default under the indenture governing the notes which, in turn, may also constitute an event of default under other obligations of the Company. Any event of default under the indenture or other obligations of the Company and any additional obligations and restrictions imposed as a result thereof could negatively impact our financial results.

Our financial results may be adversely affected by increased tax rates and exposure to additional tax liabilities

A number of factors may increase our future effective tax rates, including, but not limited to:

the jurisdictions in which profits are determined to be earned and taxed;
recent changes in our global structure that involve an increased investment in technology outside of the United States to better align asset ownership and business functions with revenues and profits;
the resolution of issues arising from tax audits with various tax authorities;
changes in the valuation of our deferred tax assets and liabilities;
adjustments to estimated taxes upon finalization of various tax returns;
increases in expenses not deductible for tax purposes, including impairments of goodwill in connection with acquisitions;
changes in available tax credits;
changes in share-based compensation;
changes in tax laws or the interpretation of such tax laws, and changes in generally accepted accounting principles; and
the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes.

We are subject to taxation in various countries and jurisdictions. Significant judgment is required to determine tax liabilities on a worldwide basis. Any significant increase in our future effective tax rates could reduce net income for future periods and may have a material adverse impact on our results of operations.

We may be materially adversely affected by currency fluctuations or changes in trade policies

We conduct our manufacturing and other operations in various worldwide locations. A portion of our operating costs and expenses at foreign locations are paid in local currencies. Many of the materials used in our products and much of the manufacturing process for our products are supplied by foreign companies or by our foreign operations, such as our test operations in the Philippines and Thailand. Approximately 88%, 85% and 85% of our net revenues in fiscal years 2012, 2011 and 2010, respectively, were from

15



international sales. Accordingly, both manufacturing and sales of our products may be adversely affected by political or economic conditions abroad. In addition, various forms of protectionist trade legislation are routinely proposed in the United States and certain foreign countries. A change in current tariff structures or other trade policies could adversely affect our foreign manufacturing or marketing strategies. Currency exchange fluctuations could also decrease revenue and increase our operating costs, the cost of components manufactured abroad, and the cost of our products to foreign customers, or decrease the costs of products produced by our foreign competitors.

We are subject to a variety of domestic and international laws and regulations, including the U.S. Customs and Export Regulations

Among other laws and regulations, we are subject to U.S. Customs and Export Regulations, including U.S. International Traffic and Arms Regulations and similar laws, which collectively control import, export and sale of technologies by companies and various other aspects of the operation of our business. Failure to comply with such laws and regulations may result in civil and criminal enforcement, including monetary fines and possible injunctions against shipment of product or other activities of the Company, which could have a material adverse impact on our results of operations and financial condition.

If we fail to attract and retain qualified personnel, or fail to efficiently implement management organizational changes, our business may be harmed

Our success depends to a significant extent upon the continued service of our chief executive officer, our other executive officers, and key management and technical personnel, particularly our experienced engineers and business unit managers, and on our ability to continue to attract, retain, and motivate qualified personnel and our ability to identify and appropriately handle under- performing personnel. The loss of the services of one or several of our executive officers could have a material adverse effect on us. In addition, there could be a material adverse effect on us should the turnover rates for engineers and other key personnel increase significantly or should we be unable to continue to attract, motivate and retain qualified personnel through economic and other incentives or through other means. Should we lose one or more engineers who are key to a project's completion during the course of a particular project, the project's completion may be delayed. Such a delay could negatively affect customer relationships and goodwill and could have a material adverse effect on our results of operations. Further, we periodically implement changes to the organization of our management. Failure to implement such changes efficiently could have a material adverse effect on our results of operation.

Our certificate of incorporation contains certain anti-takeover provisions that may discourage, delay or prevent a hostile change in control of our Company

Our certificate of incorporation permits our Board of Directors to authorize the issuance of up to 2,000,000 shares of preferred stock and to determine the rights, preferences and privileges and restrictions applicable to such shares without any further vote or action by our stockholders. Any such issuance might discourage, delay or prevent a hostile change in control of our Company.

Generally Accepted Accounting Principles require us to utilize estimates which may lead to volatility in reported earnings and balances

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates relate to the useful lives and fair value of fixed assets, valuation allowance for deferred tax assets, reserves relating to uncertain tax positions, allowances for doubtful accounts, customer returns and allowances, inventory valuation, reserves relating to litigation matters, assumptions about the fair value of reporting units, goodwill and other intangibles impairment, accrued liabilities and reserves and assumptions related to the calculation of stock-based compensation. The Company bases its estimates and judgments on its historical experience, knowledge of current conditions and its beliefs regarding what could occur in the future, given available information. Actual results may differ from those estimates, and such differences may be material to the financial statements.  Additionally, new accounting pronouncements and guidance have been promulgated by the Financial Accounting Standards Board (“FASB”) that require companies to regularly attempt to determine or estimate the fair value of certain assets and liabilities and adjust those amounts to reflect the revised estimates. Recent pronouncements have broadened this trend to direct how to estimate and account for fair value measurements as well as give companies the option to apply fair value measurements more broadly to many financial assets and liabilities.

ITEM 1B. UNRESOLVED STAFF COMMENTS


16



None.

ITEM 2. PROPERTIES

We relocated our principal executive offices to San Jose, California in June 2012. Manufacturing and other operations are conducted in several locations worldwide. The following table provides certain information regarding our principal owned and leased offices and manufacturing facilities at June 30, 2012:

Owned Property Location
Use(s)
Approximate
Floor Space
(sq. ft.)
 
 
 
San Jose, California
Corporate headquarters, office space, engineering, manufacturing, administration, customer services, shipping, and other
435,000

 
 
 
San Jose, California
Wafer fabrication, office space and administration
80,000

 
 
 
Sunnyvale, California
Office space and engineering space (not being utilized currently)
23,000

 
 
 
N. Chelmsford, Massachusetts
Engineering, office space and administration
30,000

 
 
 
Beaverton, Oregon
Wafer fabrication, engineering, office space and administration
226,000

 
 
 
Hillsboro, Oregon
Engineering, manufacturing, office space and administration
325,000

 
 
 
Farmers Branch, Texas
Office space, engineering, manufacturing, administration, bump facility, customer service, warehousing, shipping, and other (240,000 sq.ft. are not being utilized currently)
704,000

 
 
 
Irving, Texas
Wafer fabrication space, office space and administration (not being utilized currently)
622,000

 
 
 
San Antonio, Texas
Wafer fabrication, office space and administration
381,000

 
 
 
Cavite, the Philippines
Manufacturing, engineering, administration, office space, customer service, shipping, and other
479,000

 
 
 
Batangas, the Philippines
Manufacturing, engineering, office space and other
78,000

 
 
 
Chonburi Province, Thailand
Manufacturing, engineering, administration, office space, customer service, shipping, and other
144,000

 
 
 
Bangalore, India
Land
4.6 acres

 
 
 
Chandler, Arizona
Office space, engineering, and test
65,000


In addition to the property listed in the above table, we also lease sales, engineering, administration and manufacturing offices and other premises at various locations in the United States and overseas under operating leases, none of which are material to our future cash flows. These leases expire at various dates through 2025. We anticipate no difficulty in retaining occupancy of any of our manufacturing, office or sales facilities through lease renewals prior to expiration or through month-to-month occupancy or in replacing them with equivalent facilities.

We expect these facilities to be adequate for our business purposes through at least the next 12 months.


17



ITEM 3. LEGAL PROCEEDINGS

Legal Proceedings

We are party or subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, including proceedings and claims that relate to intellectual property matters and acquisitions we have completed or to companies we have acquired or are attempting to acquire. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of any of these matters, individually or in the aggregate, will result in losses that are materially in excess of amounts already recognized or reserved, if any.

Indemnifications

The Company indemnifies certain customers, distributors, suppliers and subcontractors for attorney fees, damages and costs awarded against such parties in certain circumstances in which the Company's products are alleged to infringe third party intellectual property rights, including patents, registered trademarks or copyrights. The terms of the Company's indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to the Company's potential liability for indemnification relating to intellectual property infringement claims.

Legal Fees Associated with Indemnification Obligations, Defense and Other Related Costs

Pursuant to the Company's charter documents and separate written indemnification agreements, the Company has certain indemnification obligations to its current officers and directors, as well as certain former officers and directors. Pursuant to such obligations, the Company has incurred expenses related to legal fees and expenses advanced to certain former officers of the Company who were subject to civil suits and civil charges by the SEC in connection with Maxim's historical stock option granting practices. The Company expenses such amounts as incurred.     

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Global Select Market ("NASDAQ") under the symbol MXIM. At August 7, 2012, there were 872 stockholders of record of our common stock.

The following table sets forth the range of the high and low closing prices by quarter for fiscal years 2012 and 2011:

 
High
 
Low
Fiscal Year ended June 30, 2012
 
 
 
     First Quarter
$25.95
 
$21.08
     Second Quarter
$27.08
 
$22.92
     Third Quarter
$29.19
 
$25.95
     Fourth Quarter
$29.86
 
$24.41
 
 
 
 
 
High
 
Low
Fiscal Year ended June 25, 2011
 
 
 
     First Quarter
$18.54
 
$15.87
     Second Quarter
$24.82
 
$17.81
     Third Quarter
$28.10
 
$23.58
     Fourth Quarter
$28.34
 
$23.79




18




The following table sets forth the dividends paid per share for fiscal years 2012 and 2011:

 
Fiscal Years
 
2012
 
2011
 
 
 
 
First Quarter
$0.22
 
$0.21
Second Quarter
$0.22
 
$0.21
Third Quarter
$0.22
 
$0.21
Fourth Quarter
$0.22
 
$0.21

Issuer Purchases of Equity Securities

The following table summarizes the activity related to stock repurchases for the three months ended June 30, 2012:
 
Issuer Repurchases of Equity Securities
 
(in thousands, except per share amounts)
 
Total Number
of Shares
Purchased
 
Weighted Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Amount That May Yet Be Purchased Under the Plans or Programs
Apr. 1, 2012 - Apr. 28, 2012
535

 
$
27.74

 
535

 
$
592,645

Apr. 29, 2012 - May 26, 2012
630

 
$
27.19

 
630

 
$
575,515

May 27, 2012 - Jun. 30, 2012
955

 
$
25.46

 
955

 
$
551,204

Total
2,120

 
$
26.55

 
2,120

 
$
551,204


In August 2011, the Board of Directors authorized the Company to repurchase up to $750 million of the Company's common stock from time to time at the discretion of the Company's management. This stock repurchase authorization has no expiration date. All prior authorizations by the Company's Board of Directors for the repurchase of common stock were canceled and superseded by this authorization.

During fiscal year 2012, the Company repurchased approximately 9.9 million shares of its common stock for $246.4 million. As of June 30, 2012, the Company had remaining authorization of $551.2 million for future share repurchases. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company's common stock and liquidity and general market and business conditions.

Equity Compensation Plan Information

For important information regarding our equity compensation plans, please see Note 6, "Stock-Based Compensation," in the Notes to the Consolidated Financial Statements included in this Annual Report.

Stock Performance Graph

The line graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the NASDAQ Composite Stock Index and the Philadelphia Semiconductor index for the five years ended June 30, 2012. The graph and table assume that $100 was invested on June 29, 2007 (the last day of trading for the year ended June 30, 2007) in each of our common stock, the NASDAQ Composite Stock Index and the SPDR S&P Semiconductor Index, and that all dividends were reinvested. Cumulative total stockholder returns for our common stock, the NASDAQ Composite Stock Index and the Philadelphia Semiconductor index are based on our fiscal year.


19



 
Base Year
 
Fiscal Year Ended
 
June 30, 2007
 
June 28, 2008
 
June 27, 2009
 
June 26, 2010
 
June 25, 2011
 
June 30, 2012
Maxim Integrated Products, Inc.
100.00

 
64.93

 
52.68

 
59.42

 
85.30

 
94.01

NASDAQ Composite-Total Return
100.00

 
89.69

 
71.94

 
87.84

 
105.90

 
118.54

Philadelphia Semiconductor-Total Return
100.00

 
74.33

 
53.98

 
73.22

 
82.65

 
82.31



ITEM 6. SELECTED FINANCIAL DATA

Set forth below is a summary of certain consolidated financial information with respect to the Company as of the dates and for the periods indicated. The data set forth below as of June 30, 2012 and June 25, 2011 and for each of the three years in the period ended June 30, 2012 are derived from and should be read in conjunction with, and are qualified by reference to, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Financial Statements and Supplementary Data, and notes thereto included elsewhere in this Annual Report. The following selected financial data as of June 26, 2010, June 27, 2009, and June 28, 2008 and for the two years in the period ended June 27, 2009 is derived from our consolidated financial statements not included herein. The historical results are not necessarily indicative of the results to be expected in any future period.


20



 
Fiscal Year Ended
 
June 30, 2012
 
June 25, 2011
 
June 26, 2010
 
June 27, 2009
 
June 28, 2008
 
(Amounts in thousands, except percentages and per share data)
Consolidated Statements of Income Data:
 

 
 

 
 

 
 

 
 

Net revenues 
$
2,403,529

 
$
2,472,341

 
$
1,997,603

 
$
1,646,015

 
$
2,052,783

Cost of goods sold 
952,677

 
942,377

 
804,537

 
797,138

 
804,083

 
 
 
 
 
 
 
 
 
 
Gross margin 
$
1,450,852

 
$
1,529,964

 
$
1,193,066

 
$
848,877

 
$
1,248,700

Gross margin %
60.4
%
 
61.9
%
 
59.7
%
 
51.6
%
 
60.8
%
 
 
 
 
 
 
 
 
 
 
Operating income 
$
534,797

 
$
673,039

 
$
292,050

 
$
17,378

 
$
426,053

% of net revenues 
22.3
%
 
27.2
%
 
14.6
%
 
1.1
%
 
20.8
%
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
354,918

 
$
489,009

 
$
125,139

 
$
10,455

 
$
317,725

Income from discontinued operations, net of tax
31,809

 

 

 

 

Net income
$
386,727

 
$
489,009

 
$
125,139

 
$
10,455

 
$
317,725

 
 
 
 
 
 
 
 
 
 
Earnings per share: basic
 

 
 

 
 

 
 

 
 

From continuing operations
$
1.21

 
$
1.65

 
$
0.41

 
$
0.03

 
$
0.99

From discontinued operations
0.11

 

 

 

 

Basic net income per share
$
1.32

 
$
1.65

 
$
0.41

 
$
0.03

 
$
0.99

 
 
 
 
 
 
 
 
 
 
Earnings per share: diluted
 
 
 
 
 
 
 
 
 
From continuing operations
$
1.18

 
$
1.61

 
$
0.40

 
$
0.03

 
$
0.98

From discontinued operations
0.11

 

 

 

 

Diluted net income per share
$
1.29

 
$
1.61

 
$
0.40

 
$
0.03

 
$
0.98

 
 
 
 
 
 
 
 
 
 
Shares used in the calculation of 
 

 
 

 
 

 
 

 
 

earnings per share:
 

 
 

 
 

 
 

 
 

Basic 
292,810

 
296,755

 
304,579

 
310,805

 
320,553

 
 
 
 
 
 
 
 
 
 
Diluted 
300,002

 
303,377

 
310,016

 
311,479

 
325,846

 
 

 
 

 
 

 
 

 
 

Dividends paid per share 
$
0.88

 
$
0.84

 
$
0.80

 
$
0.80

 
$
0.75

 
 
 
 
 
 
 
 
 
 
 
As of
 
June 30, 2012
 
June 25, 2011
 
June 26, 2010
 
June 27, 2009
 
June 28, 2008
 
(Amounts in thousands)
Consolidated Balance Sheet Data:
 

 
 

 
 

 
 

 
 

Cash, cash equivalents and short-term investments
$
956,386

 
$
1,012,887

 
$
826,512

 
$
913,403

 
$
1,218,198

Working capital 
$
943,977

 
$
1,313,512

 
$
1,174,096

 
$
1,316,175

 
$
1,627,406

Total assets 
$
3,737,946

 
$
3,527,743

 
$
3,482,325

 
$
3,081,775

 
$
3,708,390

Long-term debt
$
5,592

 
$
300,000

 
$
300,000

 
$

 
$

Stockholders' equity
$
2,538,277

 
$
2,510,818

 
$
2,352,958

 
$
2,594,465

 
$
3,147,811



21



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and notes thereto included in Part II, Item 8, the risk factors included in Part I, Item 1A, and the "forward-looking statements" and other risks described herein and elsewhere in this Annual Report before making an investment decision regarding our common stock.

Overview

We are a global company with manufacturing facilities in the United States, the Philippines and Thailand, and sales offices and design centers throughout the world. We design, develop, manufacture and market linear and mixed-signal integrated circuits, commonly referred to as analog circuits, for a large number of customers in diverse geographical locations. The analog market is fragmented and characterized by diverse applications, a great number of product variations and, with respect to many circuit types, relatively long product life cycles. The major end-markets in which we sell our products are the industrial, communications, consumer and computing markets. We are incorporated in the State of Delaware.

Critical Accounting Policies

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results of operations, and that require us to make our most difficult and subjective accounting judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include revenue recognition, which impact the recording of revenues; valuation of inventories, which impacts costs of goods sold and gross margins; the assessment of recoverability of long-lived assets, which impacts write-offs of fixed assets; assessment of recoverability of intangible assets and goodwill, which impacts write-offs of goodwill and intangible assets; accounting for stock-based compensation, which impacts cost of goods sold, gross margins and operating expenses; accounting for income taxes, which impacts the income tax provision; and assessment of litigation and contingencies, which impacts charges recorded in cost of goods sold, selling, general and administrative expenses and income taxes. These policies and the estimates and judgments involved are discussed further below. We have other significant accounting policies that either do not generally require estimates and judgments that are as difficult or subjective, or it is less likely that such accounting policies would have a material impact on our reported results of operations for a given period. Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in this Annual Report.

Revenue Recognition

The Company recognizes revenue for sales to direct customers and sales to certain distributors upon shipment, provided that persuasive evidence of a sales arrangement exists, the price is fixed or determinable, title and risk of loss has transferred, collectability of the resulting receivable is reasonably assured, there are no customer acceptance requirements and we do not have any significant post-shipment obligations. The Company estimates returns for sales to direct customers and certain distributors based on historical returns rates applied against current period gross revenues. Specific customer returns and allowances are considered within this estimate.

Sales to certain distributors are made pursuant to agreements allowing for the possibility of certain sales price rebates and for non-warranty product return privileges. The non-warranty product return privileges include allowing certain distributors to return a small portion of our products in their inventory based on their previous purchases. Given the uncertainties associated with the levels of non-warranty product returns and sales price rebates that could be issued to certain distributors, the Company defers recognition of such revenue and related cost of goods sold until receipt of notification from these distributors that product has been sold to their end-customers.

Accounts receivable from direct customers and distributors are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon shipment at which point the Company has a legally enforceable right to collection under normal terms. Accounts receivable related to consigned inventory is recognized when the customer takes title to such inventory from its consigned location at which point inventory is relieved, title transfers, and the Company has a legally enforceable right to collection under the terms of our agreement with the related customers.

The Company estimates potential future returns and sales allowances related to current period product revenue. Management analyzes historical returns, changes in customer demand and acceptance of products when evaluating the adequacy of returns and sales allowances.  Estimates made by us may differ from actual returns and sales allowances.  These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable. Historically, such differences have not been

22



material. At June 30, 2012 and June 25, 2011, the Company had $11.4 million and $16.0 million accrued for returns and allowances against accounts receivable, respectively. During fiscal years 2012 and 2011, the Company recorded $61.0 million and $74.5 million for estimated returns and allowances against revenues, respectively. These amounts were offset by $65.6 million and $73.5 million for actual returns and allowances given during fiscal years 2012 and 2011, respectively.

Inventories

Inventories are stated at the lower of (i) standard cost, which approximates actual cost on a first-in-first-out basis, or (ii) market value. Our standard cost revision policy is to continuously monitor manufacturing variances and quarterly revise standard costs. Because of the cyclical nature of the market, inventory levels, obsolescence of technology, and product life cycles, we generally write-down inventories to net realizable value based on 12 months forecasted product demand. Actual demand and market conditions may be lower than those projected by us. This difference could have a material adverse effect on our gross margin should inventory write-downs beyond those initially recorded become necessary. Alternatively, should actual demand and market conditions be more favorable than those estimated by us, gross margin could be favorably impacted. Historically, such differences have not been material. During fiscal years 2012, 2011 and 2010, we had inventory write-downs of $26.1 million, $13.8 million and $3.7 million, respectively.

Long-Lived Assets

We evaluate the recoverability of property, plant and equipment in accordance with Accounting Standards Codification ("ASC") No. 360, Accounting for the Property, Plant, and Equipment ("ASC 360"). We perform periodic reviews to determine whether facts and circumstances exist that would indicate that the carrying amounts of property, plant and equipment might not be fully recoverable. If facts and circumstances indicate that the carrying amount of property, plant and equipment might not be fully recoverable, we compare projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful lives against their respective carrying amounts. In the event that the projected undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets. Evaluation of impairment of property, plant and equipment requires estimates in the forecast of future operating results that are used in the preparation of the expected future undiscounted cash flows. Actual future operating results and the remaining economic lives of our property, plant and equipment could differ from our estimates used in assessing the recoverability of these assets. These differences could result in impairment charges, which could have a material adverse impact on our results of operations. We recorded impairment charges of $30.1 million, $0.0 million and $8.3 million during fiscal years 2012, 2011 and 2010, respectively.

Intangible Assets and Goodwill

We account for intangible assets in accordance with ASC 360. We review goodwill and purchased intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable, such as when reductions in demand or significant economic slowdowns in the semiconductor industry are present.

Intangible assets reviews are performed to determine whether the carrying value is impaired, based on comparisons to undiscounted expected future cash flows. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated using: (i) quoted market prices or (ii) discounted expected future cash flows utilizing a discount rate consistent with the guidance provided in FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements. Impairment is based on the excess of the carrying amount over the fair value of those assets.

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. In accordance with ASC No. 350, Intangibles-Goodwill and Other ("ASC 350"), we test goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis in the first quarter or more frequently if we believe indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. We generally determine the fair value of our reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill. No impairment charges were recorded associated with our goodwill and intangible assets during fiscal years 2012, 2011, and 2010.




23



Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718, Compensation in Stock Compensation ("ASC 718"). ASC 718 requires the recognition of the fair value of stock-based compensation for all stock-based payment awards, including grants of stock options and other awards made to our employees and directors in exchange for services, in the income statement. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. Accordingly, stock-based compensation cost is measured at the grant date, based on the fair value of the awards ultimately expected to vest and is recognized as an expense, on a straight-line basis, over the requisite service period. We use the Black-Scholes valuation model to measure the fair value of our stock-based awards utilizing various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield. ASC 718 also requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures or vesting differ from those estimates. Such revisions could have a material effect on our operating results. The assumptions we use in the valuation model are based on subjective future expectations combined with management judgment. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation for future awards may differ materially compared to the awards granted previously.

Accounting for Income Taxes

We must make certain estimates and judgments in the calculation of income tax expense, determination of uncertain tax positions, and in the determination of whether deferred tax assets are more likely than not to be realized. The calculation of our income tax expense and income tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations.

ASC 740-10, Income Taxes ("ASC 740-10"), prescribes a recognition threshold and measurement framework for financial statement reporting and disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, a tax position is recognized in the financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50% likelihood of being realized upon settlement. Although we believe that the Company's computation of tax benefits to be recognized and realized are reasonable, no assurance can be given that the final outcome will not be different from what was reflected in our income tax provisions and accruals. Such differences could have a material impact on our net income and operating results in the period in which such determination is made. See Note 16 to the Consolidated Financial Statements accompanying this Annual Report for further information related to ASC 740-10.
 
We evaluate our deferred tax asset balance and record a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized. In the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount, an adjustment to the deferred tax asset valuation allowance would be recorded. This adjustment would increase income, or additional paid in capital, as appropriate, in the period such determination was made. Likewise, should it be determined that all or part of the net deferred tax asset would not be realized in the future, an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period such determination is made. In assessing the need for a valuation allowance, historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered. Realization of our deferred tax asset is dependent primarily upon future U.S. taxable income. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to the net deferred tax asset and an accompanying reduction or increase in net income in the period in which such determinations are made.

Litigation and Contingencies

From time to time, we receive notices that our products or manufacturing processes may be infringing the patent or other intellectual property rights of others, notices of stockholder litigation or other lawsuits or claims against us. We periodically assess each matter in order to determine if a contingent liability in accordance with ASC No. 450, Accounting for Contingencies ("ASC 450"), should be recorded. In making this determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. We expense legal fees associated with consultations and defense of lawsuits as incurred. Based on the information obtained, combined with management's judgment regarding all of the facts and circumstances of each matter, we determine whether a contingent loss is probable and whether the amount of such loss can be estimated. Should a loss be probable and estimable, we record a contingent loss in accordance with ASC 450. In determining the amount of a contingent loss, we take into consideration advice received from experts in the specific matter, current status of legal proceedings, settlement negotiations which may be ongoing, prior case history and other factors. Should the judgments and estimates made by management be incorrect, we may need to record additional contingent losses that could materially adversely impact our results of operations.

24



Alternatively, if the judgments and estimates made by management are incorrect and a particular contingent loss does not occur, the contingent loss recorded would be reversed thereby favorably impacting our results of operations.

Pursuant to the Company's charter documents and separate written indemnification agreements, we have certain indemnification obligations to our current officers and directors, as well as certain former officers and directors. Pursuant to such obligations, we have incurred substantial expenses related to legal fees for certain former officers of the Company subject to civil charges by the SEC and other governmental agencies in connection with Maxim's historical stock option granting practices. During fiscal year 2010, the Company recorded a $173.0 million charge in connection with an agreement to settle the class action complaint regarding its historical stock option granting practices and on July 23, 2010, the Company paid such amount into an escrow fund in accordance with the terms of the settlement. Please refer to Note 13, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report for more information on the litigation and associated settlement.

Results of Operations
The following table sets forth certain Consolidated Statements of Income data expressed as a percentage of net revenues for the periods indicated:

 
June 30,
2012
 
June 25,
2011
 
June 26,
2010
 
 

 
 

 
 

Net revenues
100
 %
 
100
 %
 
100
%
Cost of goods sold 
39.6
 %
 
38.1
 %
 
40.3
%
Gross margin 
60.4
 %
 
61.9
 %
 
59.7
%
Operating expenses:
 

 
 

 
 

Research and development 
23.0
 %
 
21.2
 %
 
23.8
%
Selling, general and administrative 
13.4
 %
 
11.8
 %
 
12.1
%
Intangible asset amortization
0.7
 %
 
0.8
 %
 
0.5
%
Impairment of long-lived assets
1.3
 %
 
 %
 
0.4
%
Severance and restructuring expenses 
0.3
 %
 
0.1
 %
 
%
Other operating (income) expenses, net
(0.5
)%
 
0.8
 %
 
8.3
%
Total operating expenses 
38.2
 %
 
34.7
 %
 
45.1
%
Operating income
22.2
 %
 
27.2
 %
 
14.6
%
Interest (expense) income and other, net
(0.1
)%
 
(0.5
)%
 
0.4
%
Income before provision for income taxes
22.1
 %
 
26.7
 %
 
15.0
%
Provision for income taxes
7.4
 %
 
7.0
 %
 
8.8
%
Income from continuing operations
14.7
 %
 
19.7
 %
 
6.2
%
Income from discontinued operations, net of tax
1.3
 %
 
 %
 
%
Net income 
16.0
 %
 
19.7
 %
 
6.2
%

The following table shows pre-tax stock-based compensation included in the components of the Consolidated Statements of Income reported above as a percentage of net revenues for the periods indicated:

 
For the Year Ended
 
June 30,
2012
 
June 25,
2011
 
June 26,
2010
 
 

 
 

 
 

Cost of goods sold
0.5
%
 
0.6
%
 
0.8
%
Research and development
2.0
%
 
2.2
%
 
2.7
%
Selling, general and administrative
1.1
%
 
1.0
%
 
1.2
%
 
3.6
%
 
3.8
%
 
4.7
%

Net Revenues

We reported net revenues of $2,403.5 million, $2,472.3 million and $1,997.6 million in fiscal years 2012, 2011 and 2010, respectively. Our net revenues in fiscal year 2012 decreased by 3% compared to our net revenues in fiscal year 2011. This decrease occurred primarily due to decreased demand for our products in three of our end markets. Revenue from communications products, computing products and industrial products were down 21%, 19% and 10%, respectively. These decreases were offset by increases in consumer products revenues of 21%, primarily from cell phones and smart phones.

25




Our net revenues in fiscal year 2011 increased by 24% compared to our net revenues in fiscal year 2010. This increase occurred
in three of our end markets due to increased demand for our products, resulting in increased units shipped and increased average selling prices. Revenue from industrial products were up 35%, consumer products were up 28% and communications products were up 26%. Computing products were flat year over year mainly due to exiting certain notebook products with low gross margin and focusing on a better mix, which resulted in a 16% decrease in notebook revenue that offset the growth in other market segments.

Approximately 88%, 85% and 85% of the Company's net revenues in fiscal years 2012, 2011 and 2010, respectively, were derived from customers located outside the United States, primarily in the Pacific Rim, Europe, and Japan. While sales are primarily denominated in U.S. dollars, the Company enters into foreign currency forward contracts to mitigate its risks on firm commitments and net monetary assets denominated in foreign currencies. The impact of changes in foreign exchange rates on net revenues and the Company's results of operations for fiscal years 2012, 2011 and 2010 were immaterial.

Gross Margin

Our gross margin as a percentage of net revenue was 60.4% in fiscal year 2012 compared to 61.9% in fiscal year 2011. The year over year decrease in gross margin was primarily attributable to lower factory utilization and higher inventory reserves of $13.1 million

Our gross margin as a percentage of net revenue was 61.9% in fiscal year 2011 compared to 59.7% in fiscal year 2010. Year over year improvements in gross margin was primarily due to higher factory utilization, and decreased stock-based compensation as a percentage of revenue.
 
Research and Development

Research and development expenses were $552.4 million and $525.3 million for fiscal years 2012 and 2011, respectively, which represented 23.0% and 21.2% of net revenues, respectively. The increase in research and development expenses was largely attributable to an increase in salaries and fringe expenses of $17.9 million, primarily related to annual salary adjustments and an extra week in fiscal year 2012.

Research and development expenses were $525.3 million and $474.7 million for fiscal years 2011 and 2010, respectively, which represented 21.2% and 23.8% of net revenues, respectively. The increase in research and development expenses was largely attributable to an increase in salaries and bonuses of $28.1 million, primarily due to increased headcount and higher bonus levels in connection with increased profitability for fiscal year 2011.

The level of research and development expenditures as a percentage of net revenues will vary from period to period depending, in part, on the level of net revenues and on our success in recruiting the technical personnel needed for our new product introductions and process development. We view research and development expenditures as critical to maintaining a high level of new product introductions, which in turn are critical to our plans for future growth.

Selling, General and Administrative

Selling, general and administrative expenses were $321.3 million and $292.5 million in fiscal years 2012 and 2011, respectively, which represented 13.4% and 11.8% of net revenues, respectively. The increase in selling, general, and administrative expenses for fiscal year 2012 as compared to fiscal year 2011 was largely attributable to an increase in salaries and fringe expenses of $14.2 million, primarily due to annual salaries adjustments and an extra week in fiscal 2012. In addition, legal expense increased by $5.1 million.

Selling, general and administrative expenses were $292.5 million and $242.1 million in fiscal years 2011 and 2010, respectively, which represented 11.8% and 12.1% of net revenues, respectively. The increase in selling, general, and administrative expenses for fiscal year 2011 as compared to fiscal year 2010 was largely attributable to an increase in salaries, bonuses, and benefits of $35.5 million, primarily due to increased headcount and higher bonus levels in connection with increased profitability for fiscal year 2011. In addition, travel and expensed equipment increased $6.9 million due to our headcount and business growth requirements.

The level of selling, general and administrative expenditures as a percentage of net revenues will vary from period to period, depending on the level of net revenues and our success in recruiting sales and administrative personnel needed to support our operations.


26



Intangible Asset Amortization Expenses

Intangible asset amortization expenses were $16.7 million and $18.8 million in fiscal years 2012 and 2011, respectively. The decrease in intangible asset amortization expenses was attributable primarily to fiscal year 2011 amortization of customer related intangibles pertaining to the acquisition of Teridian Semiconductor, Inc ("Teridian") in May 2010, which did not recur in fiscal year 2012.

Intangible asset amortization expenses were $18.8 million and $10.5 million in fiscal years 2011 and 2010, respectively. The increase in intangible asset amortization expenses was primarily attributable to the acquisition of Teridian in the fourth quarter of fiscal year 2010 and Phyworks in the first quarter of fiscal year 2011.

Impairment of Long-lived Assets

Impairment of long lived assets was $30.1 million in fiscal year 2012 and $0.0 million in fiscal year 2011. The increase in impairments during fiscal year 2012 was due primarily to write-downs of certain buildings classified in the period as held for sale and certain assets identified as excess, including wafer fabrication and certain end of line manufacturing equipment. 

Impairment of long lived assets was $0.0 million in fiscal year 2011 and $8.3 million in fiscal year 2010. The decrease in impairments during fiscal year 2011 was mainly due to $5.0 million end of line sorting and testing equipment write-down to its estimated fair value and a $3.3 million write-down of Oregon fabrication facility equipment in fiscal year 2010.

Other Operating Income (Expenses), Net

Other operating expenses, net include legal and accounting fees directly attributable to the restatement of our previously filed financial statements completed in fiscal year 2009, cost reductions due to the reversal of accruals established in prior years for payroll taxes, interest and penalties related to the misdating of option grants and exercises and losses associated with our sale of the Maxim headquarters.

Other operating (income) expenses, net were $(11.2) million and $19.1 million in fiscal years 2012 and 2011, respectively, which represented (0.5)% and 0.8% of net revenues, respectively. The decrease in other operating (income) expenses, net was attributable to the gain of $6.5 million from sale of one of our facilities in the third quarter of fiscal year 2012, the loss of $14.3 million incurred in the second quarter of fiscal year 2011 on the sale of the Sunnyvale headquarters and a decrease in payroll tax and related adjustments of $11.0 million.

Other operating (income) expenses, net were $19.1 million and $166.2 million in fiscal years 2011 and 2010, respectively, which represented 0.8% and 8.3% of net revenues, respectively. The decrease in other operating (income) expenses, net was attributable to a $173.0 million fiscal year 2010 charge in connection with an agreement to settle the class action complaint. See Note 13: Commitments and Contingencies. This was partially offset by a $14.3 million loss on the sale of our Sunnyvale headquarters in the second quarter of fiscal year 2011.

Interest income (expense) and Other, Net

Interest (expense) income and other, net were $(2.1) million in fiscal year 2012 and $(11.4) million in fiscal year 2011, which represented (0.1)% and (0.5)% of net revenues, respectively. The lower expense was attributable to more gain on derivatives, disposal of fixed assets and foreign currency translation of $3.5 million, $2.7 million and $1.7 million, respectively.

Interest (expense) income and other, net were $(11.4) million in fiscal year 2011 and $8.0 million in fiscal year 2010, which represented (0.5)% and 0.4% of net revenues, respectively. The change was partially attributable to an increase of interest expense of $10.7 million related to our $300 million long-term debt issued in June 2010, a $4.6 million increase in foreign exchange losses in 2011 as compared to foreign exchange gains in 2010, and a reduction in interest income of $2.9 million resulting from lower average interest rates and reduced average cash and short term investment balances.

Provision for Income Taxes

Our annual income tax expense from continuing operations was $177.8 million, $172.7 million, and $174.9 million, in fiscal years 2012, 2011, and 2010, respectively. The effective tax rate from continuing operations was 33.4%, 26.1% and 58.3% for fiscal years 2012, 2011, and 2010, respectively. The Company's federal statutory tax rate is 35%.

The Company's fiscal year 2012 effective tax rate was lower than the statutory tax rate primarily because of earnings of foreign

27



subsidiaries taxed at lower tax rates, partially offset by stock-based compensation for which no tax benefit is expected.

The Company's fiscal year 2011 effective tax rate was lower than the statutory tax rate primarily because of a $39.4 million benefit for the realization of unrecognized tax benefits, including related interest, and earnings of foreign subsidiaries taxed at lower tax rates, partially offset by $8.1 million relating to fiscal year 2010 adjustments for differences between our finalized tax return and the tax provision originally recorded. The income tax provision for the fiscal year 2011 also included a $3.6 million one-time benefit for the retroactive extension of the U.S. federal research tax credit to January 1, 2010 by legislation that was signed into law on December 17, 2010.

The fiscal year 2010 effective tax rate was higher than the statutory tax rate primarily because of losses of a foreign subsidiary for which no tax benefit was available. These foreign losses represent costs of ongoing research and development efforts as well as licensing rights to preexisting intangibles.

Discontinued operations

In the third quarter of fiscal year 2012, the Company sold its clock synchronization business for a total sale price of approximately $44.0 million. The Company also sold certain future technologies, including die types that will result in future products, in the storage area. The total sale price for this transaction was approximately $15.0 million. As a result of these two transactions, the Company recognized a gain on sale of discontinued operations of $31.8 million, net of income taxes.

Recently Issued Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-08 relating to Intangibles-Goodwill and Other (Topic 350)-Testing Goodwill for Impairment ("ASU 2011-08"). The ASU allows an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that it is more likely than not, an entity is required to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for Maxim in fiscal year 2013 and earlier adoption is permitted.
In June 2011, the FASB issued ASU No. 2011-05 relating to Comprehensive Income (Topic 220)-Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU is effective for Maxim in fiscal year 2013 and should be applied retrospectively.
Financial Condition, Liquidity and Capital Resources

Financial Condition

Cash flows were as follows:

 
June 30,
2012
 
June 25,
2011
 
June 26,
2010
 
(in thousands)
Net cash provided by operating activities
$
756,722

 
$
861,454

 
$
490,953

Net cash used in investing activities
(384,765
)
 
(278,334
)
 
(241,648
)
Net cash used in financing activities
(453,438
)
 
(447,091
)
 
(132,141
)
Net (decrease) increase in cash and cash equivalents
$
(81,481
)
 
$
136,029

 
$
117,164

Operating activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities.

Cash from operations for the year 2012 decreased by approximately $104.7 million compared with fiscal year 2011. This was due to a decrease in net income of $102.3 million, a decrease in deferred taxes of $109.3 million and a decrease in other accrued liabilities, other current assets, accounts receivables and gain from discontinued operations of $263.5 million over fiscal year 2012. These decreases were offset by an increase in income tax payable of $180.3 million over fiscal year 2012 and the payment of $173.0 million in July, 2010 relating to the litigation settlement, which was accrued for in fiscal year 2010.

28




Cash from operations for fiscal year 2011 increased by approximately $370.5 million compared with fiscal year 2010. This was due to an increase in net income of $363.9 million, a reduction in the receivables by $167.5 million and a reduction in other current assets by $132.6 million, during fiscal year 2011, as compared to fiscal year 2010. These increases were offset by the payment of $173.0 million in July, 2010 relating to the litigation settlement, which was accrued for in fiscal year 2010. (For more information on contingencies, see Note 13 to the Consolidated Financial Statements accompanying this Annual Report).

Investing activities

Investing cash flows consist primarily of capital expenditures, net investment purchases and maturities and acquisitions.

Cash used in investing activities increased by $106.4 million for fiscal year 2012 compared with fiscal year 2011. The increase was due primarily to an increase in net capital expenditures relating to property, plant and equipment of $99.8 million and an increase of $87.6 million relating to increased level of acquisitions. These increases were offset by $56.6 million in proceeds from sale of discontinued operations and a $24.7 million reduction in purchases of short-term investments.

Cash used in investing activities increased by $36.7 million for fiscal year 2011 compared with fiscal year 2010. The increase was due primarily to $200.2 million proceeds from maturity of short-term investments in the fiscal year ended 2010, that did not recur in fiscal year 2011, $49.8 million relating to purchase of short-term investments and an increase of $26.5 million in net capital expenditures relating to property, plant and equipment, including the proceeds from the sale of our Sunnyvale headquarters. The increase was offset by $235.9 million representing less cash used for acquisitions.

Financing activities

Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders and withholding tax payments associated with net share settlements of equity awards.

Net cash used in financing activities increased by approximately $6.3 million for fiscal year 2012 compared with fiscal year 2011. This increase was due primarily to higher repayments of notes payable of $19.4 million and greater repurchases of common stock of $15.4 million. These increases were offset by $25.1 million of higher proceeds received from exercise of stock options.

Net cash used in financing activities increased by approximately $315.0 million for fiscal year 2011 compared with fiscal year 2010. This increase was due primarily to cash proceeds from issuance of debt in 2010 of $298.6 million which did not reoccur in 2011.

Liquidity and Capital Resources
Debt Levels
On June 17, 2010, we completed a public offering of $300 million aggregate principal amount of the Company's 3.45% senior unsecured and unsubordinated notes due on June 14, 2013, In addition, on July 18, 2011, we acquired certain fixed and floating rate notes in conjunction with our acquisition of SensorDynamics. (Please refer to Note 5: Financial Instruments to the Consolidated Financial Statements).

Outstanding debt increased to $309 million as of June 30, 2012 as compared to $300 million at June 25, 2011, bearing weighted average interest rates of 3.45% and 3.49% for the year ended June 30, 2012 and June 25, 2011, respectively. The increase was driven by the debt assumed in and still outstanding from the SensorDynamics acquisition.

Available borrowing resources
As of June 30, 2012, the Company had the capacity to issue an unspecified amount of additional debt securities, common stock, preferred stock, warrants, rights and units under the 2010 Shelf Registration Statement.

On October 13, 2011, the Company entered into a $250 million senior unsecured revolving credit facility with certain institutional lenders that expires on October 13, 2016. The Company has agreed to pay the lenders a facility fee at a rate per annum that varies based on the Company's index debt rating. Any advances under the credit agreement will accrue interest at a base rate plus a margin based on the Company's index debt rating. The credit agreement requires the Company to comply with certain covenants, including a requirement that the Company maintain a ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization)

29



of not more than 3 to 1 and a minimum interest coverage ratio (EBITDA divided by interest expense) greater than 3.5 to 1. As of June 30, 2012, the Company had not borrowed any amounts from this credit facility and was in compliance with all debt covenants.

As of June 30, 2012, our available funds consisted of $956 million in cash, cash equivalents and short-term investments. We anticipate that the available funds and cash generated from operations will be sufficient to meet cash and working capital requirements, including the anticipated level of capital expenditures, common stock repurchases, debt repayments and dividend payments for at least the next twelve months.

Contractual Obligations

The following table summarizes the Company's significant contractual obligations at June 30, 2012, and the effect such obligations are expected to have on the Company's liquidity and cash flows in future periods. This table excludes amounts already recorded on our Consolidated Balance Sheet as current liabilities at June 30, 2012:

 
Total
 
Less than
1 year
 
2-3 years
 
4-5 years
 
More than
5 years
 
(Amounts in thousands)
Operating lease obligations (1) 
$
40,390

 
$
10,993

 
$
14,625

 
$
9,951

 
$
4,821

Royalty obligations (2)
10,000

 
10,000

 

 

 

Long-term debt obligations (3)
309,088

 
303,496

 
2,028

 
2,599

 
965

Interest payments associated with long-term debt obligations (4)
10,806

 
10,554

 
168

 
79

 
5

Capital equipment and inventory related purchase obligations (5)
19,258

 
2,162

 
4,564

 
4,564

 
7,968

Total 
$
389,542

 
$
337,205

 
$
21,385

 
$
17,193

 
$
13,759


(1) The Company leases some facilities under non-cancelable operating lease agreements that expire at various dates through 2025.
(2) Royalty obligations represent payments for licensed patents.
(3) Long-term debt represents amounts due for the Company's $300 million notes due 2013 and other notes acquired through the SensorDynamics acquisition.
(4) Interest payments associated with the Company's $300 million notes due 2013 and other notes acquired through the SensorDynamics acquisition.
(5) Capital equipment purchase obligations represent commitments for purchase of property, plant and equipment. The Company orders some materials and supplies in advance or with minimum purchase quantities. The Company is obligated to pay for the materials and supplies when received.

Purchase orders for the purchase of the majority of our raw materials and other goods and services are not included above. Our purchase orders generally allow for cancellation without significant penalties. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected short-term requirements.

As of June 30, 2012, our gross unrecognized income tax benefits were $228.9 million, which excludes $10.6 million of accrued interest and penalties. At this time, we are unable to make a reasonably reliable estimate of the timing of payments of these amounts, if any, in individual years due to uncertainties in the timing or outcomes of either actual or anticipated tax audits. As a result, these amounts are not included in the table above.

Off-Balance-Sheet Arrangements

As of June 30, 2012, the Company did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company's exposure to market risk for changes in interest rates relates primarily to the Company's cash and cash equivalents, short term investments and notes payable. See Note 5 "Financial Instruments" to the Consolidated Financial Statements included in this Annual Report. The Company does not use derivative financial instruments to hedge the risk of interest rate volatility. At

30



June 30, 2012, the Company maintained a significant portfolio of money market fund investments, which are included in cash and cash equivalents. These money market funds are all available on a daily basis.

Foreign Currency Risk

The Company generates revenues in various global markets based on orders obtained in non-U.S. currencies, primarily the Japanese Yen, the Euro and the British Pound. Maxim incurs expenditures denominated in non-U.S. currencies, principally the Philippine Pesos and Thai Baht associated with the Company's manufacturing activities in the Philippines and Thailand, respectively, and expenditures for sales offices and research and development activities undertaken outside of the U.S. Maxim is exposed to fluctuations in foreign currency exchange rates primarily on orders and accounts receivable from sales in these foreign currencies and cash flows for expenditures in these foreign currencies. Maxim has established risk management strategies designed to reduce the impact of volatility of future cash flows caused by changes in the exchange rate for these currencies. These strategies reduce, but do not entirely eliminate, the impact of currency exchange rates movements. Maxim does not use derivative financial instruments for speculative or trading purposes. The Company routinely hedges its exposures to certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations. If a financial counterparty to any of the Company's hedging arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, the Company may experience financial losses.
 
For derivative instruments that are designated and qualify as cash flow hedges under ASC No. 815-Derivatives and Hedging ("ASC 815"), the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive loss and reclassified into earnings into the same financial statement line as the item being hedged, and in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in interest and other expense, net.
 
For derivative instruments that are not designated as hedging instruments under ASC 815, gains and losses are recognized in interest and other expense, net. All derivatives are foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivatives largely offset the changes in the fair value of the assets or liabilities being hedged.

Foreign exchange contracts

The net unrealized gain or loss, if any, is potentially subject to market and credit risk as it represents appreciation (decline) of the hedge position against the spot exchange rates. The net realized and unrealized gains or losses from hedging foreign currency denominated assets and liabilities were immaterial during the year ended June 30, 2012 and June 25, 2011.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this Item are set forth at the pages indicated in Item 15(a) of this Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer ("CEO") and our chief financial officer ("CFO"), evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of June 30, 2012. The purpose of these controls and procedures is to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules, and that such information is accumulated and communicated to our management, including our CEO and our CFO, to allow timely decisions regarding required disclosures. Based on the evaluation, our management, including our CEO and our CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2012.



31



Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, the Company's CEO and CFO and effected by the Company's Board of Directors, management, and others to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management, with the participation of our CEO and our CFO, assessed the effectiveness of our internal control over financial reporting as of June 30, 2012. Management's assessment of internal control over financial reporting was conducted using the criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has concluded that, as of June 30, 2012, our internal control over financial reporting was effective, in all material respects, based on these criteria. Deloitte & Touche LLP, an Independent Registered Public Accounting Firm, audited the effectiveness of the Company's internal control over financial reporting, as stated within their report which is included herein.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2012 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on the Effectiveness of Internal Controls

A system of internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP and no control system, no matter how well designed and operated, can provide absolute assurance. The design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of its inherent limitations, internal control over financial reporting may not prevent or detect financial statement errors and misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

32



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Maxim Integrated Products, Inc.
San Jose, California
We have audited the internal control over financial reporting of Maxim Integrated Products, Inc. and subsidiaries (the "Company") as of June 30, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended June 30, 2012 of the Company and our report dated August 17, 2012 expressed an unqualified opinion on those financial statements and financial statement schedule.
DELOITTE & TOUCHE LLP
San Jose, California
August 17, 2012


33



ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Other than as follows, the information required by this Item is incorporated by reference from the Company's Proxy Statement for the 2012 Annual Meeting of Stockholders under the headings "Audit Committee and Audit Committee Financial Expert," "Proposal 1 - Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934."

Executive Officers of the Registrant

The following is information regarding our executive officers, including their positions and ages as of June 30, 2012.

Name
 
Age
 
Position
Tunc Doluca
 
54
 
President and Chief Executive Officer 
Bruce E. Kiddoo
 
51
 
Senior Vice President and Chief Financial Officer
David A. Caron
 
52
 
Vice President and Principal Accounting Officer
Vivek Jain
 
52
 
Senior Vice President of Manufacturing Operations
Chae Lee
 
47
 
Senior Vice President, Mobility Group
Edwin Medlin
 
55
 
Vice President, General Counsel
Matthew J. Murphy
 
39
 
Senior Vice President, Communications and Automotive Solutions Group
Christopher J. Neil
 
46
 
Senior Vice President, Industrial and Medical Solutions Group
Pirooz Parvarandeh
 
52
 
Chief Technology Officer
Walter Sangalli
 
55
 
Vice President, Worldwide Sales and Marketing
Steven Yamasaki
 
57
 
Vice President of Human Resources

Mr. Doluca has served as a director of Maxim as well as the President and Chief Executive Officer since January 2007. He joined Maxim in October 1984 and served as Vice President from 1994 to 2004. He was promoted to Senior Vice President in 2004 and Group President in May 2005. Prior to 1994, he served in a number of integrated circuit development positions.

Mr. Kiddoo joined Maxim in September 2007 as Vice President of Finance. On October 1, 2008, immediately following the completion of Maxim's restatement of previously filed financial statements, Mr. Kiddoo was appointed Chief Financial Officer and Principal Accounting Officer of Maxim and was appointed Senior Vice President in September 2009. Prior to joining Maxim, Mr. Kiddoo held various positions at Broadcom Corporation, a global semiconductor company, beginning in December 1999. Mr. Kiddoo served as Broadcom's Corporate Controller and Principal Accounting Officer from July 2002 and served as Vice President from January 2003. He also served as Broadcom's Acting Chief Financial Officer from September 2006 to March 2007.

Mr. Caron has served as Maxim's Corporate Controller since July 2003 and, prior to that, served as Maxim's Director of Accounting from December 1998 to July 2003.  Mr. Caron was appointed Vice President and Principal Accounting Officer in August 2010. Mr. Caron is a Certified Public Accountant in the state of California and holds a Bachelor of Science in Accounting from San Jose State University.  

Mr. Jain joined Maxim in April 2007 as Vice President responsible for our wafer fabrication operations. In June 2009 Mr. Jain was promoted to Senior Vice President with expanded responsibility for managing test and assembly operations in addition to wafer fabrication operations. Prior to joining Maxim, Mr. Jain was Plant Manager for several years at Intel Corporation's Technology Development and Manufacturing facility in Santa Clara, California responsible for 65nm flash manufacturing/transfer and development of 45nm flash technology. Mr. Jain has published over 30 papers and holds over 10 patents in the field of semiconductor technology.
 
Mr. Lee joined Maxim in 1999 and was promoted to Vice President in 2007. He was promoted to Senior Vice President in May 2012. Prior to 2007, he served in a number of business unit and engineering positions.

Mr. Medlin joined Maxim in November 1999 as Director and Associate General Counsel. He was promoted to Vice President

34



and Senior Counsel in April 2006 and appointed General Counsel in August 2010. Prior to joining Maxim, he was with the law firm of Ropers, Majeski, Kohn and Bentley from 1987 to 1994 where he held various positions, including director. From 1994 to 1997 he was with Fox Factory, Inc., a privately held manufacturing company where he held the positions of General Counsel, and later, General Manager. From 1997 to 1999 he was with RockShox, Inc., a publicly traded corporation, where he held the positions of General Counsel and then Vice President of Global Sales and Marketing.
 
Mr. Murphy joined Maxim in July 1994 and was promoted to Vice President of Sales in November 2006. He was promoted to Senior Vice President in September 2011. In October 2011 he assumed responsibility for the Communications and Automotive Group. Prior to 2006, he served in a number of business unit and executive management positions.
 
Mr. Neil joined Maxim in September 1990 and was promoted to Vice President in April 2006. He was promoted to Senior Vice President in September 2011. Prior to 2006, he held several engineering and executive management positions.

Mr. Parvarandeh joined Maxim in July 1987 and served as Vice President from 1997 to 2004. He was promoted to Senior Vice President in 2004 and Group President in May 2005. In September 2010, Mr. Parvarandeh was also appointed Chief Technical Officer. Prior to 1997, he served in a number of integrated circuit development positions.
 
Mr. Sangalli joined Maxim in 1992 as a senior field applications engineer and was promoted to Vice President of Worldwide Sales and Marketing in October 2011. Prior to his promotion to Vice President, he managed all sales and application functions in Europe since 2002.

Mr. Yamasaki joined Maxim in April 2010 as Vice President of Human Resources. Prior to joining Maxim, he was Corporate Vice President of Human Resources of Applied Materials from 2008 to 2010, and was Executive Vice President of Human Resources of YRC Worldwide from 2004 to 2008. Before joining YRC Worldwide, Mr. Yamasaki was Vice President of Human Resources at ConAgra Foods Inc. and Honeywell International.

Code of Business Conduct and Ethics

We have a Code of Business Conduct and Ethics (the "Code of Ethics"), which applies to all directors and employees, including, but not limited to, our principal executive officer, principal financial officer and principal accounting officer. The Code of Ethics is designed to promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest arising from personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we are required to file with the SEC and in other public communications, (iii) compliance with applicable governmental laws, rules and regulations, (iv) the prompt internal reporting of violations of the Code of Ethics to an appropriate person or group, and (v) accountability for adherence to the Code of Ethics. A copy of the Code of Ethics is available on our website at http://www.maxim-ic.com/company/policy. A hard copy of the Code of Ethics will be sent free of charge upon request.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2012 Annual Meeting of Stockholders under the headings "Director Compensation," "Compensation Discussion and Analysis," "Report of Compensation Committee" and "Executive Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2012 Annual Meeting of Stockholders under the heading "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. "

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2012 Annual Meeting of Stockholders under the headings "Corporate Governance" and "Certain Relationships and Related Transactions."

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2012 Annual Meeting of Stockholders under the headings "Report of the Audit Committee" and "Principal Accountant Fees and Services."

35




PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following are filed as part of this Report:

 
 
 
 
Page
 
(1)
Financial Statements.
 
 
 
Consolidated Balance Sheets at June 30, 2012 and June 25, 2011

 
 
 
Consolidated Statements of Income for each of the three years in the period ended June 30, 2012
 
 
 
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 30, 2012
 
 
 
Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2012
 
 
 
Notes to Consolidated Financial Statements
 
 
 
Report of Independent Registered Public Accounting Firm
 
 
(2)
Financial Statement Schedule.
 
 
 
 
The following financial statement schedule is filed as part of this Annual Report on Form 10-K and should be read in conjunction with the financial statements.
 
 
 
 
Schedule II - Valuation and Qualifying Accounts
 
 
 
All other schedules are omitted because they are not applicable, or because the required information is included in the consolidated financial statements or notes thereto.
 
 
 
(3)
The Exhibits filed as a part of this Report are listed in the attached Index to Exhibits.
 
 

(b) Exhibits.
    
See attached Index to Exhibits.


36




MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

 
June 30,
2012
 
June 25,
2011
 
 

 
 

ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
881,060

 
$
962,541

Short-term investments
75,326

 
50,346

 
 
 
 
  Total cash, cash equivalents and short-term investments
956,386

 
1,012,887

     Accounts receivable, net of allowances of $12,529 in 2012 and $17,697 in 2011
317,461

 
297,632

     Inventories
242,162

 
237,928

     Deferred tax assets
98,180

 
113,427

     Other current assets
85,177

 
65,978

 
 
 
 
          Total current assets
1,699,366

 
1,727,852

     Property, plant and equipment, net
1,353,606

 
1,308,850

     Intangible assets, net
208,913

 
204,263

     Goodwill
423,073

 
265,125

     Other assets
52,988

 
21,653

 
 
 
 
               TOTAL ASSETS
$
3,737,946

 
$
3,527,743

 
 
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 

     Accounts payable 
$
147,086

 
$
110,153

     Income taxes payable
22,589

 
3,912

     Accrued salary and related expenses
191,846

 
215,627

     Accrued expenses 
64,092

 
47,767

Current portion of long-term debt
303,496

 

     Deferred income on shipments to distributors
26,280

 
36,881

 
 
 
 
          Total current liabilities
755,389

 
414,340

Long term debt
5,592

 
300,000

Income taxes payable 
212,389

 
96,099

Deferred tax liabilities
198,502

 
183,715

Other liabilities
27,797

 
22,771

 
 
 
 
          Total liabilities 
1,199,669

 
1,016,925

 
 
 
 
Commitments and contingencies (Note 13)


 


 
 
 
 
Stockholders' equity:
 
 
 
     Preferred stock, $0.001 par value
 
 
 
          Authorized: 2,000 shares, issued and outstanding: none

 

     Common stock, $0.001 par value
 
 
 
          Authorized: 960,000 shares 
 
 
 
          Issued and outstanding: 292,732 in 2012 and 295,780 in 2011
293

 
296

     Additional paid-in capital 

 

     Retained earnings 
2,553,418

 
2,524,790

     Accumulated other comprehensive loss
(15,434
)
 
(14,268
)
 
 
 
 
          Total stockholders' equity
2,538,277

 
2,510,818

 
 
 
 
               TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 
$
3,737,946

 
$
3,527,743


See accompanying Notes to Consolidated Financial Statements.

37



MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

 
For the Years Ended
 
June 30,
2012
 
June 25,
2011
 
June 26,
2010
 
 
 
 
 
 
Net revenues
$
2,403,529

 
$
2,472,341

 
$
1,997,603

Cost of goods sold
952,677

 
942,377

 
804,537

          Gross margin 
1,450,852

 
1,529,964

 
1,193,066

Operating expenses:
 

 
 

 
 

     Research and development
552,379

 
525,308

 
474,652

     Selling, general and administrative
321,273

 
292,494

 
242,144

     Intangible asset amortization
16,737

 
18,752

 
10,477

     Impairment of long-lived assets
30,095

 

 
8,291

     Severance and restructuring expenses 
6,785

 
1,247

 
(699
)
     Other operating (income) expenses, net
(11,214
)
 
19,124

 
166,151

          Total operating expenses 
916,055

 
856,925

 
901,016

               Operating income
534,797

 
673,039

 
292,050

Interest (expense) income and other, net
(2,064
)
 
(11,368
)
 
8,013

Income before provision for income taxes
532,733

 
661,671

 
300,063

Provision for income taxes
177,815

 
172,662

 
174,924

Income from continuing operations
354,918

 
489,009

 
125,139

Income from discontinued operations, net of tax
31,809

 

 

Net income 
$
386,727

 
$
489,009

 
$
125,139

 
 

 
 

 
 

Earnings per share: basic
 

 
 

 
 

From continuing operations
$
1.21

 
$
1.65

 
$
0.41

From discontinued operations
0.11

 

 

     Basic
$
1.32

 
$
1.65

 
$
0.41

 
 
 
 
 
 
Earnings per share: diluted
 
 
 
 
 
From continuing operations
$
1.18

 
$
1.61

 
$
0.40

From discontinued operations
0.11

 

 

Diluted
$
1.29

 
$
1.61

 
$
0.40

 
 
 
 
 
 
Shares used in the calculation of earnings per share: 
 

 
 

 
 

     Basic
292,810

 
296,755

 
304,579

 
 
 
 
 
 
     Diluted 
300,002

 
303,377

 
310,016

 
 

 
 

 
 

Dividends paid per share 
$0.88
 
$0.84
 
$0.80


See accompanying Notes to Consolidated Financial Statements.

38



MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
Common Stock
 
Additional
 
 
 
Accumulated Other
 
Total
(In thousands)
Shares
 
Par Value
 
Paid-In Capital
 
Retained Earnings
 
Comprehensive Loss
 
Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 27, 2009
306,019

 
$
306

 
$
21,205

 
$
2,580,610

 
$
(7,656
)
 
$
2,594,465

Components of comprehensive income: 
 

 
 

 
 

 
 

 
 

 
 

Net income
 

 
 

 
 

 
125,139

 
 
 
125,139

Unrealized actuarial loss on post-retirement benefits, net of tax
 

 
 

 
 

 
 
 
(896
)
 
(896
)
Tax effect of the unrealized exchange gain on long-term intercompany receivable
 

 
 

 
 

 
 
 
(1,893
)
 
(1,893
)
Unrealized loss on available-for-sale investments, net of tax
 

 
 

 
 

 
 
 
(1,346
)
 
(1,346
)
Unrealized loss on forward-exchange contracts, net of tax
 
 
 
 
 
 
 
 
(150
)
 
(150
)
Total comprehensive income
 

 
 

 
 

 
 
 
 
 
120,854

Repurchase of common stock 
(10,303
)
 
(10
)
 
(93,499
)
 
(97,396
)
 
 
 
(190,905
)
Common stock issued under stock plans, net of shares withheld for employee taxes
3,295

 
3

 
(29,475
)
 
 
 
 
 
(29,472
)
Stock based compensation 
 
 
 
 
90,440

 
 
 
 
 
90,440

Tax shortfall on settlement of equity instruments
 
 
 
 
(15,748
)
 
 
 
 
 
(15,748
)
Derivative settlement, net of tax
 
 
 
 
3,512

 
 
 
 
 
3,512

Modification of equity instruments to liability 
 
 
 
 
(1,205
)
 
 
 
 
 
(1,205
)
Common stock issued under Employee Stock Purchase Plan
1,837

 
2

 
24,770

 
 
 
 
 
24,772

Dividends paid 
 
 
 
 
 
 
(243,755
)
 
 
 
(243,755
)
Balance, June 26, 2010
300,848

 
$
301

 
$

 
$
2,364,598

 
$
(11,941
)
 
$
2,352,958

Components of comprehensive income: 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
 
 
 
 
 
489,009

 
 
 
489,009

Unrealized actuarial loss on post-retirement benefits, net of tax
 
 
 
 
 
 
 
 
(289
)
 
(289
)
Tax effect of the unrealized exchange gain on long-term intercompany receivable
 
 
 
 
 
 
 
 
(2,369
)
 
(2,369
)
Unrealized gain on available-for-sale investments, net of tax
 
 
 
 
 
 
 
 
331

 
331

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
486,682

Repurchase of common stock 
(10,880
)
 
(11
)
 
(151,329
)
 
(79,672
)
 
 
 
(231,012
)
Common stock issued under stock plans, net of shares withheld for employee taxes
2,660

 
3

 
(28,839
)
 
 
 
 
 
(28,836
)
Stock options exercised
1,461

 
1

 
24,829

 
 
 
 
 
24,830

Stock based compensation 
 
 
 
 
93,623

 
 
 
 
 
93,623

Tax benefit on settlement of equity instruments
 
 
 
 
30,546

 
 
 
 
 
30,546

Modification of liability instruments to equity
 
 
 
 
2,350

 
 
 
 
 
2,350

Common stock issued under Employee Stock Purchase Plan
1,691

 
2

 
28,820

 
 
 
 
 
28,822

Dividends paid 
 
 
 
 
 
 
(249,145
)
 
 
 
(249,145
)
Balance, June 25, 2011
295,780

 
$
296

 
$

 
$
2,524,790

 
$
(14,268
)
 
$
2,510,818

Components of comprehensive income: 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
386,727

 
 
 
386,727

Unrealized actuarial loss on post-retirement benefits, net of tax
 
 
 
 
 
 
 
 
(2,603
)
 
(2,603
)
Tax effect of the unrealized exchange loss on long-term intercompany receivable
 
 
 
 
 
 
 
 
1,612

 
1,612

Unrealized loss on available-for-sale investments, net of tax
 
 
 
 
 
 
 
 
(129
)
 
(129
)
Unrealized loss on foreign exchange forward contracts, net of tax
 
 
 
 
 
 
 
 
(46
)
 
(46
)
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
385,561

Repurchase of common stock 
(9,920
)
 
(10
)
 
(146,034
)
 
(100,368
)
 
 
 
(246,412
)
Net issuance of restricted stock units
2,357

 
2

 
(29,650
)
 
 
 
 
 
(29,648
)
Stock options exercised
2,843

 
3

 
49,903

 
 
 
 
 
49,906

Stock based compensation 
 
 
 
 
88,958

 
 
 
 
 
88,958

Tax benefit on settlement of equity instruments
 
 
 
 
3,112

 
 
 
 
 
3,112

Common stock issued under Employee Stock Purchase Plan
1,672

 
2

 
33,711

 
 
 
 
 
33,713

Dividends paid 
 
 
 
 
 
 
(257,731
)
 
 
 
(257,731
)
Balance, June 30, 2012
292,732

 
$
293

 
$

 
$
2,553,418

 
$
(15,434
)
 
$
2,538,277


See accompanying Notes to Consolidated Financial Statements.

39



MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
For the Years Ended
 
June 30,
2012
 
June 25,
2011
 
June 26,
2010
Cash flows from operating activities:
 
 
 
 
 
Net income
$
386,727

 
$
489,009

 
$
125,139

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 
 
 

Stock-based compensation 
89,867

 
94,297

 
93,525

Depreciation and amortization 
211,096

 
205,062

 
167,523

Deferred taxes
30,759

 
140,084

 
29,090

In process research & development
1,600

 

 

(Gain) loss from sale of property, plant and equipment
(7,648
)
 
12,946

 
272

(Gain) loss from sale of investments in privately-held companies
(1,811
)
 

 
148

Tax benefit (shortfall) related to stock-based compensation
3,112